Week in Review 
For the week 5/21/2007 - 5/25/2007
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street?and China

Chinese Vice Premier Wu Yi came to Washington for trade talks with U.S. Treasury Secretary Hank Paulson and Ms. Wu must have been smiling on the flight home because China didn't give up anything.

Earlier, upon her arrival, Mr. Paulson explained that Americans are an "impatient" people who are demanding a change in China's attitude toward free trade between the two countries, and that "Even the notion of a dialogue may seem too passive for America's action-oriented ethic. It is up to us, over these two days and in the work that follows, to show that words are precursors to action," adding that Americans are increasingly skeptical about China's intentions. "Unfortunately, in America this is manifesting itself as anti-China sentiment."

Ms. Wu countered, "Against the ever-deepening economic globalization today, confrontation does no good at all for problem-solving, and pressure and posturing can only make the situation more complex. We should not easily blame the other side for our own domestic problems." [Wall Street Journal]

At the end of the discussions, all the U.S. gained was a few air routes and the possibility China may employ our clean-coal technology. Congress was unimpressed, thereby increasing the possibility of a trade war through irresponsible legislation fueled by election year politics.

There are a number of problems here, first of which is the fact Hank Paulson is highly compromised after his work in China with Goldman Sachs. I would compare it to all the comments I made years ago concerning Taiwanese businessmen and their relationship with the mainland as they sought closer ties. Many of these figures didn't care about the future of democratic Taiwan; it was all about the money. And in a similar fashion, despite what Paulson's true intentions may be today, there is a history there, and it wasn't always about promoting America's best interests, of this you can be sure.

China is playing hardball because it can. It knows it has the United States over a barrel, and because of this it attempts to play the aggrieved victim even when the facts speak otherwise.

Beijing complains about being bullied; whether the topic is steel, paper, intellectual property rights, piracy or access to its financial services industry.

Then you have the issue of tainted food. The Food and Drug Administration detained some 107 food imports from China at U.S. ports just last month. Rick Weiss of the Washington Post reports:

"Dried apples preserved with a cancer-causing chemical. Frozen catfish laden with banned antibiotics. Scallops and sardines coated with putrefying bacteria. Mushrooms laced with illegal pesticides."

I will never buy another fish product labeled "from China." Weiss adds:

"China's less-than-stellar behavior as a food exporter is revealed in stomach-turning detail in FDA 'refusal reports' filed by U.S. inspectors: Juices and fruits rejected as 'filthy.' Prunes tinted with chemical dyes not approved for human consumption. Frozen breaded shrimp preserved with nitrofuran, an antibacterial that can cause cancer. Swordfish rejected as 'poisonous.'

"In the first four months of 2007, FDA inspectors - who are able to check out less than 1 percent of regulated imports - refused 298 food shipments from China. By contrast, 56 shipments from Canada were rejected, even though Canada exports about $10 billion in FDA-regulated food and agricultural products to the United States - compared to about $2 billion from China."

For its part, China claims hypocrisy because of the lengths the U.S. is willing to go to protect its own domestic industries.

But it's important to remember that it's not just Washington which has its disagreements with Beijing on the trade front. The hue and cry is just as loud in Europe, where European companies are often victims to a greater degree than their U.S. counterparts. So look for increased retaliation on the part of the European Union. None of this is good for the global economy and the markets.

It's also more than just trade at issue these days. It's about geopolitics, as I detail in the "foreign affairs" section below. For now, suffice it to say China has been zero help to the United States on two paramount issues, North Korea and Iran.

So about now, though, you may be thinking to yourself, 'Hey editor, why do you then own shares in the biodiesel company in China that you visited last month?' It's an investment idea I came across, it's involved in alternative/clean energy, which China desperately needs, and over time I just believe I can make some money in it. But to those who are playing along with me, I reiterate, this is an 18-24 month hold. The stock has been struggling the past two weeks, I think simply for reasons of skittishness over anything China (for non-Chinese investors, that is). I have not sold any, and, understand it is the kind of stock that can advance 25% in a single day.

But I do have to add that in the rest of my portfolio, the past few weeks I have been a seller and am comfortably back to the 80% cash level I've touted in this space. I sold my two traditional oil & gas plays for substantial gains [I've only had one loser in this sector in well over 20 trades the past eight years], I sold other assorted stocks for profits, and even jettisoned my carbon fiber holding in a classic 'sell the news' move. [Those following this last one know what I'm referring to. I could also easily get back into it later on, and I'll tell you if I do.]

Basically, I now have the biodiesel position, a water story, and two solar power plays (as well as some assorted flotsam). I would just add on the solar issues, I told you last week to be wary of all the fly by night operators arriving on the scene and wouldn't you know the Journal highlighted just this topic on Wednesday, referring specifically to those outfits based in China. I own the biggest play there (traded on the NYSE) and I also have shares in a California-based solar power company that is doing well. I view both of these as potentially multi-year holds, though I expect the smaller operator to be acquired, possibly by the big one.

So why the rush to raise cash? I don't care what the experts say, stocks are not cheap. Maybe not particularly expensive, especially compared to valuation levels in 1999-2000, but not cheap either. When you can earn 4.50%+ in cash, it's not a bad alternative.

I'm also concerned about terrorism this summer, far more so than past years. One conventional attack on a major European city or here would be relatively inconsequential, as we've learned from the likes of London and Madrid. But two occurring in a short period of time would hurt markets worldwide.

And of course it's not as if the U.S. economy is suddenly off to the races following four below trend quarters. Unbelievably, some know-nothings took Thursday's data on new-home sales, up 16%, to mean we had hit a bottom in the real estate sector; conveniently forgetting the fact the median home price was down 11%, year-over-year, and that new-home sales data is notoriously inaccurate because it doesn't account for contracts that are later canceled. Sure enough, the next day we saw that the far more important existing home sales index was off 2.6% and that the median home price was down 0.8%. Additionally, inventories rose to 8.4 months supply. You can not have a true recovery until you begin to put a dent in this last one.

I also have to repeat an important theme for many of us, that being property taxes. How lousy is it that the value of your home is stagnating, at best, yet your taxes continue to rise like clockwork; 5, 6, or 7 percent?! Do you think that leads to increased consumer spending? I don't. [What I do know is that you'll see more and more instances of citizens descending on their respective city halls with pitchforks.]

And not for nothing, but interest rates are rising. Yes, we are still at historical lows, but you continue to have the affordability issue in most areas of the country, despite declines in prices, while any increase in mortgage rates makes them even less so. Plus you can't ignore, from a macro standpoint, the fact up to $1 trillion in mortgages is set to reset by the end of the year?at higher rates. In many cases, far higher.

Then there's the price of gasoline. I get a kick out of all the talk about how we are finally at levels set in 1981, when adjusted for inflation. I'm going to get into the haves vs. have nots again next week, but for now, $40 or $50 to fill your tank is big money for many Americans. While we haven't begun to cut back on driving overall, there will be an impact in other parts of the economy and I'm not even going to bring up hurricane season.

Lastly, in two different surveys released this week [AP-Ipsos and New York Times/CBS News], only 25% of Americans say things are headed in the right direction in this country. I don't need to rattle off the reasons why?.you already know them. But this abysmal reading is amidst an environment where we have full employment, by most measures. That's what makes it even more disquieting to yours truly.

Street Bytes

--The seven-week winning streak for the Dow Jones and S&P 500 is over, with both off about 0.5% on the week. Nasdaq declined for a third straight time, but the cumulative losses over this stretch are miniscule. What was interesting, though, was the S&P failed to close above its all-time high of 1527; surpassing it a few times, intraday, before finishing at 1515.

--U.S. Treasury Yields

6-mo. 4.96% 2-yr. 4.85% 10-yr. 4.86% 30-yr. 5.00%

The 10-year finally broke through the trading range of 4.50%- 4.80%, though we need another week or so to confirm a trend. Readings on manufacturing this week were actually pretty decent and traders in the bond pits are back in the mode that the Federal Reserve won't be lowering rates anytime soon.

--It's all about the environment these days as political leaders around the world attempt to get ahead of the curve. The Wall Street Journal reported that a bill introduced in the Senate would force utilities to generate at least 15% of their power from sources such as wind and solar, vs. the current 2%. And in Japan, Prime Minister Shinzo Abe proposed that his nation halve its greenhouse gas emissions by 2050 as part of a long-term initiative to mitigate climate change following the expiration of the Kyoto Protocol in 2013. Abe will present his plans to the Group of Eight summit next month. [The U.S., however, is headed for a collision with Germany and Chancellor Merkel over Berlin's plans on this front.]

--But wait?.there's more! General Electric said it has doubled its sales of environmentally friendly products to a whopping $12 billion over the past two years. GE CEO Jeffrey Immelt, appearing in California with Green Gov. Schwarzenegger, announced his company has $50 billion of projects in the pipeline. GE has been focusing on wind turbines, water- purification systems, and energy-efficient appliances.

And in China, wind energy is taking off, just like the above mentioned solar sector. There are now 58 manufacturers of wind turbines in China, owing to the fact 70% of the content on renewable energy projects must have local content. Of course this is leading to irrational behavior and yet another herd-like rush?over a cliff, inevitably.

The head of China's EPA, though, said "Growing population and rapid economic development have posed grave threats?We must forbid those projects that cause pollution or damage to the environment and regard biodiversity conservation as an integral part of the environmental assessment of other projects," proclaimed director Wu Xiaoqing. [South China Morning Post]

--Australia finally received rain in the southeastern part of the country last weekend, but it is merely a drop in the bucket. Nonetheless, as Prime Minister John Howard noted, it provided a much needed morale boost.

--In one of the many private equity deals on the week, wireless phone company Alltel agreed to be sold to a consortium including the private equity arm of Goldman Sachs for $27.5 billion. But the premium was only 10%, leaving many shareholders complaining Alltel sold out simply to line the pockets of top executives who could cash in.

--A report in the New England Journal of Medicine linked the widely used diabetes drug Avandia to an increased risk of heart attack, following an extensive study by noted cardiologist Steven Nissen of the Cleveland Clinic. Shares in maker GlaxoSmithKline fell sharply, as you'd expect, while the Food and Drug Administration is under fire for not having acted sooner given the fact it had knowledge of the risks years earlier.

--There's already talk that Wall Street's bonuses will rise another 10% to 15% this year. In 2006, the average bonus was $137,600; 17% ahead of 2005's record levels. Consultant Alan Johnson told Crain's New York Business, "Awards are being made without apology."

--From analyst Kevin Kerr: "Feedlot operators and farmers are feeding livestock anything they can?besides corn. (Cows) are eating leftover trail mix from factory floors, old chicken guts from the local poultry processing plant, leftover chocolate scrapings from Hershey's and burned cookies from Keebler? anything but corn and the legendary DGSS (an ethanol byproduct that can be fed to livestock). Farmers have been telling me that DGSS lacks the sugar and nutrients needed to fatten up hogs and cattle?not to mention?animals don't seem to like the taste?.

"Garbage in, garbage out, as they say. If your steak at Ruth Chris tastes like burnt cookies, you'll know why." [Source: Agora Financial]

--Unbelievably, the Canadian dollar is approaching parity. It seems like only yesterday (2002, to be exact) that the dollar hit an all-time low of 62 cents and an American buying a home there was getting a steal. No longer, as Canada's economic performance has been solid. [Though it's deeply divided between the resource rich West and the depressed industrial heartland of Ontario and Quebec. Unemployment is 3.4% in Alberta, for example, but 7.2% in Quebec.]

--Odyssey Marine Exploration Inc. announced it had recovered 17 tons of gold and silver coins from a colonial-era shipwreck, worth a reported $500 million, but they have provided few details. One veteran treasure hunter told the L.A. Times, "There is no such thing as $500 million on any wreck in the world."

But this story hits Street Bytes because Odyssey Marine Exploration is a publicly traded company and the day the announcement was made, May 18, the shares rose almost 100% (from $4.60 to $8.94, including after-hours trading), before closing this week at $6.85. [John Edwards owns an interest through his consulting work with Fortress Investment Group, the hedge fund, which holds about 10% of the company.]

--Ron Baron, the founder of the investment company bearing his name, paid $103 million for a 40-acre estate in East Hampton, New York, a record for residential property in the U.S. The owner is the heiress to the Schlumberger oil service giant.

And in yet another example of our current Great Gatsby II era, the top summer rentals (Memorial Day thru Labor Day) in the Hamptons are fetching as much as $450,000 for the season. If you're not familiar with this part of the country, also understand it often takes up to five hours to drive there from New York City.

--Former GE CEO Jack Welch gave a talk to a group of Moscow businesspeople the other day, telling them that the key to running a successful company was transparency, leadership and vision?. as well as beer. Welch said celebrating victories with staff and showing appreciation was critical. "In my early days, I'd bring a keg of beer in every Friday night." [The Moscow Times]

Foreign Affairs?Iraq

President Bush took advantage of a splintered Democratic party and achieved victory on the war funding front as both houses of Congress approved by substantial margins the spending of $100 billion on Iraq and Afghanistan through September, and with no timetables for troop withdrawals as called for by Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi. I've been noting for months that rational voices such as that of Michigan Democratic Senator Carl Levin were ignored and now the Democrats have a battle on their hands with the anti-war wing of the party. If it wasn't so serious, the sheer incompetence displayed by Reid and Pelosi would be laughable. [We'll also see how things shake out for Barack Obama and Hillary Clinton; both of whom were among just 14 senators opposing the measure.]

Former Democratic Senator Bob Kerrey noted in an op-ed for the Journal:

"Suppose we had not invaded Iraq and Hussein had been overthrown by Shiite and Kurdish insurgents. Suppose al Qaeda then undermined their new democracy and inflamed sectarian tensions to the same level of violence we are seeing today. Wouldn't you expect the same people who are urging a unilateral and immediate withdrawal to be urging military intervention to end this carnage? I would.

"American liberals need to face these truths: The demand for self-government was and remains strong in Iraq despite all our mistakes and the violent efforts of al Qaeda, Sunni insurgents and Shiite militias to disrupt it. Al Qaeda in particular has targeted for abduction and murder those who are essential to a functioning democracy: school teachers, aid workers, private contractors working to rebuild Iraq's infrastructure, police officers and anyone who cooperates with the Iraqi government. Much of Iraq's middle class has fled the country in fear.

"With these facts on the scales, what does your conscience tell you to do? If the answer is nothing, that it is not our responsibility or that this is all about oil, then no wonder today we Democrats are not trusted with the reins of power?.

"The key question for Congress is whether or not Iraq has become the primary battleground against the same radical Islamists who declared war on the U.S. in the 1990s and who have carried out a series of terrorist operations including 9/11. The answer is emphatically, 'yes.'"

But there should be no popping of champagne in the White House, either. President Bush was able to buy more time, as he hoped, but the American people remain a surly bunch, witness Bush's 30% job approval rating in the New York Times/CBS News survey and the fact 3 in 4 believe the war is going badly. Bush is now forced to embrace the very Iraq Study Group report his aides initially belittled.

And now Moqtada al-Sadr has returned. The radical Shiite cleric, after four months in Iran, blasted the U.S. (and for good measure, Israel) in a sermon on Friday, saying in part:

"No, no for the devil. No, no for America. No, no for the occupation. No, no for Israel." [AP]

But then he also called on his followers to demonstrate peacefully. Beyond that, I'm not going to attempt to divine his motives as I've seen twenty different explanations thus far. Suffice it to say, his militia splintered in his absence, he hopes to reunite it, and the U.S. continues to bemoan the fact they didn't take him out years ago.

There was also a dire warning from Turkey's Prime Minister Erdogan this week concerning a topic I've long discussed, the Kurds. It would appear Kurdish terrorists were responsible for a deadly blast in Ankara, though the Kurds deny this as of this writing, even as Erdogan is acting as if it had to be them, adding "the United States must fulfill its responsibility" in cracking down on the Kurdish terrorist organization, the PKK, that has found safe haven in Iraq. The U.S. has refused to do so thus far, fearing it would further fracture efforts to stabilize the country. But, significantly, Erdogan now says he would back the generals if they decided to retaliate and move into Kurdistan. The White House has its head in the sand on this one.

Iran: In issuing its formal report to the UN Security Council, reaffirming that Tehran's uranium enrichment program continues apace as the mullahs ignore previous Security Council resolutions, the most worrisome aspect is that the International Atomic Energy Agency admits its inspectors are losing track of key aspects of the operation.

So how close is Iran to having the bomb? We don't have a freakin' clue, mainly because we have no idea what is taking place outside the one facility the IAEA has had some access to.

Meanwhile, President Bush pleads for increased sanctions against Iran, but there is practically zero chance Russia and China will go along with them, with each having veto power.

Jim Hoagland wrote the following for his Washington Post column.

"The United States has rattled the saber loudly enough. The dispatching of a second aircraft carrier group toward Iran's waters, the capture and holding of five Iranian operatives in northern Iraq, and a hard-line speech by Vice President Cheney in the Gulf have gotten (Iranian President) Ahmadinejad's attention. Targeted banking sanctions are creating significant dislocation and pain for Tehran.

"This is the moment for Bush to show America's long-term strength by putting his weight behind the second track of a bifurcated policy: fully engaging with Iran on both Iraq and nuclear weapons, and bringing the Gulf Arabs and European allies into that dialogue. That would be the work of a confident giant."

But the time for this was last year when I was arguing we should have end run Ahmadinejad. We didn't. The nuclear program is now on an irreversible path to fulfillment, thereby virtually guaranteeing military conflict.

Israel: Hamas declared open war on Israel, pledging to renew suicide bombings, and Israel in turn vowed to take out senior Hamas officials, as is their right, including Palestinian Prime Minister Haniya and exiled leader Khaled Meshaal, who resides in Damascus. [Friday, however, Israel apologized for an airstrike near Haniya's home.]

Lebanon: Palestinian terrorists, no longer content with making life miserable for Israelis, went to war with the Lebanese Army in a refugee camp (these are really cities) outside Tripoli. The 150 to 200 militants, aligned with al Qaeda in Iraq, have the backing of Syria as Syrian President Bashar Assad pulls another deadly stunt in his attempt to prevent a UN tribunal on Syria's role in the assassination of former Lebanese prime minister Rafik Hariri. It is critical the Lebanese Army crush Fatah al-Islam and at least the White House has responded to the government's call for more arms and munitions.

It is also imperative the UN tribunal be convened, but, here again Russia and China represent the stumbling blocks.

So on three incredibly vital issues, North Korea, Iran and Lebanon, Russia and China fail to do the right thing.

North Korea: Let's see?Pyongyang was to have shut down its nuclear weapons facility at Yongbyon about six weeks ago and instead on Friday it fired a bunch of short-range missiles into the Sea of Japan and in a defense 'white paper' accused the U.S., Japan and South Korea of being Asia's biggest security threats, adding North Korea will only dismantle its nuclear program if these three dismantle missiles aimed at it.

The document also says the U.S. is "the greatest source of threat to peace and security" because of its nuclear security umbrella, while "Japanese militarism has already gone beyond the dangerous line."

China: There was a story in Friday's Financial Times that "The U.S. is increasingly concerned about China's deployment of mobile land and sea-based ballistic nuclear missiles that have the range to hit the U.S., according to people familiar with an imminent Pentagon report on China's military."

This is not anything new, having reported on it long ago, but it presents a good background for a story in the May 21 edition of Defense News by Wendell Minnick concerning a report authored by Larry Wortzel, commissioner of the U.S.-China Economic and Security Review Commission. Released by the U.S. Army War College, "China's goal of developing the capability of attacking an aircraft carrier group with ballistic missiles appears near," as Minnick writes.

Larry Wortzel:

"For some time, American naval officers have dismissed this capability as beyond the grasp of the PLA [People's Liberation Army], but advances [in technology] make the Western Pacific a more dangerous place, especially as China improves its own sensor systems."

Thomas Kane, author of numerous publications on China's nuclear capabilities, said that "PRC [People's Republic of China] officers feel they can present their weapons as 'sa shou jian' [a trump card], (which) further implies that they are prepared to entertain the possibility of using nuclear weapons?.An American naval task force, for instance, would be well equipped to resist non-nuclear missile bombardment. For missiles to serve as a trump card, either the targets must be exceptionally significant or the warheads must be exceptionally devastating."

Wendell Minnick:

"China has openly discussed using nuclear weapons on aircraft carrier groups and concentrations of U.S. military forces on Okinawa, particularly since these types of targets are isolated from civilian populations and serve as a potent threat to China."

James Mann, strategist and author at Johns Hopkins University's Paul H. Nitze School of Advanced International Studies, had the following related thoughts in an op-ed for the Washington Post.

"For authoritarian leaders around the world seeking to maintain their grip on power, China increasingly serves as a blueprint. We're used to thinking of China as an economic miracle, but it's also becoming a political model. Beijing has shown dictators that they don't have to choose between power and profit; they can have both. Today's China demonstrates that a regime can suppress organized opposition and need not establish its legitimacy through elections. It shows that a ruling party can maintain considerable control over information and the Internet without slowing economic growth?.

"This all adds up to a startling new challenge to the future of liberal democracy. And the result is ominous for the cause of freedom around the world. China's single-party state offers continuing hope not only to such largely isolated dictatorships as Burma, Zimbabwe, Syria and North Korea but also to some key U.S. friends who themselves resist calls for democracy (say, Egypt or Pakistan) and to our neighbors in Cuba and Venezuela?.

"If we don't take China's new model as seriously as the rest of the world does, we could find that we're the ones on the wrong side of history."

Lastly, the one thing Beijing fears more than anything else these days is a restive public and this week we learned of riots in Guangxi province over China's one-child policy. [Two in rural areas if the first child is a girl.] Just recently, when I was in China, I wrote of my talk with my interpreter and her own family experience wherein she said if the parents can afford it, they can circumvent the system. It boils down to yet another case of the haves and the have nots.

Pakistan: It is not an overstatement to say we have an incredibly dangerous situation developing quickly here as President Musharraf is clearly losing control. Musharraf himself acknowledged Islamic militancy is spreading across his country and "we need to strongly counter it," though he didn't elaborate.

Musharraf lost a key ally in his ruling coalition this week and the president is under increasing pressure to step down, following his own incompetence in suspending the Chief Justice of the Supreme Court last March. All the while, the United States continues to give Pakistan about $1 billion in aid a year for conducting counterterrorism efforts along the border with Afghanistan, even as there has been limited success as al Qaeda and the Taliban operate virtually unimpeded. Since 9/11, Pakistan has received close to $10 billion of our taxpayer dollars, including $6 billion for the counterterrorism program. Much of the aid money is actually funding weapons systems geared for countering India and not fighting the terrorists.

But the real struggle internally these days is more between the two large secular parties, headed by former prime ministers Benazir Bhutto and Nawaz Sharif, and the Islamic fundamentalists. Now, however, Musharraf is acting like he will stage his own reelection without allowing the other parties to participate; this after earlier pretending he was prepared to allow Bhutto to return from exile. [Sharif is in the same boat.]

The Washington Post editorialized:

"The (Bush) administration has been endlessly forgiving of the strongman even as he has failed again and again to meet his commitments. If Mr. Musharraf is now allowed to isolate himself behind riot police and militia forces while shunning secular democrats, he will set the stage for just the sort of nightmare scenario in Pakistan that has motivated U.S. support for him since 2001."

Afghanistan: Meanwhile, there have been clashes between Pakistani and Afghan forces along their 1,600-mile long border over the past two weeks. Nothing major, as yet, but understand the battles, that have claimed at least 13 Afghan soldiers and an unknown number of Pakistanis, do not involve the Taliban.

While Pakistan has a superior force, the growing tensions have united Afghans across all ethnic lines. You've seen how poor relations are between Musharraf and Afghan President Hamid Karzai and the clashes are a manifestation of this. And who benefits? The Taliban, of course, who are receiving aid from Pakistan's intelligence service, the ISI.

Russia / UK: Relations between these two are at a post-Cold War low as British prosecutors charged Andrei Lugovoi with the murder of former Soviet agent Alexander Litvinenko, who was poisoned last fall. The Kremlin refuses to extradite Lugovoi, himself a former KGB agent. A Downing Street spokesman said:

"We obviously have political and economic connections with Russia and Russia is clearly playing an important role in international affairs. However, that does not in any way obviate the need for international law to be respected and we will not in any way shy away from trying to ensure that in a case such as this."

British Foreign Secretary Margaret Beckett said "This was a very serious crime." Widow Marina Litvinenko has been consistent throughout. "It is important for British people to see that those who carried out this attack on British soil are brought to justice and to see that they are protected from what people see as state terrorism."

Ukraine: Very dangerous situation developing here as the president and prime minister battle over who has control of the interior ministry troops, some 40,000. President Yushchenko sacked a prosecutor and interior forces occupied the prosecutor's offices. But the interior minister is an ally of Prime Minister Yanukovych. Yanukovych and his supporters have accused Yushchenko of driving the country to civil war.

Remember, any conflict here could result in a serious confrontation between the West and Russia.

Kazakhstan: Last week I blasted this place for acceding to Russia's demands on a new pipeline that hurts the United States and Europe, despite the huge investments Western energy companies have made here, and then on Tuesday, President Nazarbayev approved constitutional amendments allowing him to stay in office for life, a move condemned by the opposition as an attempt to establish a personality cult.

Ireland: Prime Minister (Taoiseach) Bertie Ahern appears to have captured enough votes to stay in power a third term in elections held this week, though his coalition may have a different makeup. Despite Ireland's roaring economic success, many are displeased about the lack of progress on issues such as education and infrastructure, as well as affordability on the housing front.

Let me tell you what is a huge problem here, after my 15+ visits to Ireland since 1989?the environment. Bottom line, Ireland is a ticking time bomb. One basic issue is the lack of landfills, and then you have the excessive discharge of waste into the sea, a big problem in my little town of Lahinch on the west coast.

So I'm reading Bloomberg News' coverage of the election and notice this item.

"In Galway, in the west of Ireland, contamination of the city's water has been linked to more than 200 cases of gastrointestinal illnesses over the past month. Ahern's rivals say the outbreak is an example of the government's failure to improve Irish infrastructure."

That is oh so true. I'm telling you, unless they get their act together, tourism could plummet, for starters. There are other places to go, after all. The Irish miracle is built on an increasingly shaky foundation.

Kenya: Not that you'd choose to go here instead. A cult, the Mungiki sect, is back in the news for a number of beheadings (six at last count). From BBC News: "Police say the latest victims of the sect members were abducted and tortured before being hacked to death and their bodies dismembered?.The group has been linked to influential politicians from central Kenya in the past and there are fears they may be used to disrupt the general elections later this year." Mungiki claims to have more than one million followers. Lovely.

Zimbabwe: But not to be outdone, President Robert Mugabe's grip on power is all the more tenuous because he can no longer pay, or feed, the Army. The defense budget has been wracked by hyperinflation as a private's monthly pay, about $100 in February, is now closer to $8 with inflation running at 3,700 percent. One Western diplomat told the London Times, "The time between each big pay increase is getting shorter and shorter. The day is coming, like it did in any number of South American dictatorships, when the new pay rise will be worthless as soon as it is awarded."

---

Pray for the men and women of our armed forces. I don't like to single out individuals, but I can't help but note the killing of Pfc. Joseph Anzack, having watched a touching interview with his father on "Today." As the New York Post editorialized on Friday:

"Those who would use America's fighting forces as a cynical political pawn would do well to consider the words of Joe Anzack's father. 'I was honored to have him serve this country. I know he went over there and made a difference.'"

God bless America.

---

Gold closed at $655
Oil, $65.20

Returns for the week 5/21-5/25

Dow Jones -0.4% [13507]
S&P 500 -0.4% [1515]
S&P MidCap -0.2%
Russell 2000 +0.8%
Nasdaq -0.1% [2557]

Returns for the period 1/1/07-5/25/07

Dow Jones +8.4%
S&P 500 +6.9%
S&P MidCap +11.4%
Russell 2000 +5.4%
Nasdaq +5.9%

Bulls 54.3
Bears 20.7 [Source: Chartcraft / Investors Intelligence]

Have a great week. On Memorial Day?

"Think not only of their passing?.remember the glory of their spirit."

Brian Trumbore

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