Educate Yourself

Week in Review
For the week 7/30/2007 - 8/3/2007
Brian Trumbore
President/Editor, StocksandNews.com

Jack L., my old boss who gave me the adage "wait 24 hours," was known to be a hands off leader and there was a reason for this. "I wouldn't have hired you if I didn't think you could do the job, now do it." Frankly, his workers thrived. But I kept coming back to his statement as I watched the tragedy in Minneapolis this week.

There are some very foolish commentators on outlets like CNBC who wonder why when the question is posed 'Is this country on the right or wrong track?' a vast majority answer in the negative. Why the economy is great! The stock market is at an all-time high! What's everyone complaining about?

I look at it a different way. The latest NBC News/Wall Street Journal poll revealed that 19% of Americans believe the nation is headed in the right direction and 67% say we're on the wrong track. I can't believe there are 19% who are happy with the current state of affairs. Then again, if your only concern is yourself, and we have more than our fair share of Americans who act that way, I guess you can approach that figure.

But you couldn't help but watch the latest example of our crumbling infrastructure and get sick to your stomach. No simpler example of failure of leadership and failure to do a job you won't find.

Our system of government is broken and the current group of elected officials is an absolutely pitiful lot. Where is their sense of responsibility to attack our nation's critical issues? We've been talking about crumbling bridges and roadways for decades.

I know in the heat of the moment, and amidst the sheer confusion and chaos, that this isn't possible, but I was praying one survivor of the bridge disaster would scream into the television cameras, "I was almost killed! My kids almost lost their mother! Others did! And why? Because someone didn't do their job. I'm sick of this. When is this country going to wake up?!"

I have traveled the world and seen a lot. No doubt, when I touch back down in New Jersey, I'm happy to be home. America is still the best country on earth. But it is far from great these days.

But I want to leave you with this example of our distressing leadership void. I saw a piece on Wednesday about Sydney, Australia. From the AP:

"This city has installed dozens of loudspeakers to tell residents what to do in a terrorist attack, an official announced.

"The speakers should be operational in time for next month's meeting of 21 world leaders at the Asia Pacific Economic Cooperation summit, said David Campbell, state police minister of New South Wales.

" 'If there were a terrorist event or a major building fire and there were people in the streets, this is a way of giving them information,' Campbell told Australian Broadcasting Corp.

"A wailing siren would attract residents' attention, followed by a police announcement directing people to evacuation points plotted around the downtown area.

"The move comes just weeks after the Sydney City Council urged locals to prepare survival bags in case of emergency, including maps, first-aid supplies, important documents, spare change and an extra set of keys."

I take you back to the New York City blackout of Aug. 15, 2003. I made the following observation in this space the next day.

"Watching the crowd of up to 100,000 attempting to get ferries to take them from Manhattan to New Jersey during the blackout, I kept thinking, what will happen if a dirty bomb or chemical attack takes place and there's true panic?

"Every individual in America, even those living in the most rural areas, should think through a plan for the most terrifying scenarios. In some cases, there will be little one can do, but what worries me is that many states and cities say they have firm emergency plans in place (New York, for the most part, did perform admirably this week), but no one is telling the average citizen what to really prepare for, outside of our duct tape scare. We need leadership. We can handle the truth. We can sacrifice. And as Prime Minister Howard said, we also 'have to brace ourselves.'"

Funny how I alluded to Australia back then, too. But as we approach the sixth anniversary of 9/11, how many of you can honestly say your local or state government has given you even rudimentary survival tips or plans? We all know it would be chaos nonetheless if a dirty bomb went off, or there was a full- scale attack on a large chemical plant, but thousands of lives can still be saved. A few weeks ago, former defense secretary William Perry addressed the unthinkable; a nuclear attack. In this instance, millions could survive, even within a relatively small radius from the blast point. But as he pointed out, the people need to know what to do.

So where is our leadership? Why do we keep putting these pathetic figures, most of them corrupt (see Ted Stevens), into positions of such high responsibility? And when are you and I going to rise up and say "Enough!" It is unconscionable that we have to think twice about driving across a bridge. It is unconscionable that there are children in Minneapolis today who lost a parent, or a spouse, over simple negligence. It will be even more unconscionable when we receive another attack on our soil and innocent lives are lost because the people didn't have a plan. And it's about time we began to hold those responsible accountable. Just don't look to the White House for guidance.

I'm starting to write this segment around 3:00 p.m. on Friday and I just watched Jim Cramer on CNBC almost explode through the television set as he went ballistic over how bad it is out there on Wall Street and how Federal Reserve Chairman Ben Bernanke needs to cut interest rates immediately.

Here's what I know. We had another week where the economic releases were less than expected, including on both manufacturing and consumer spending, we had another punk jobs report, and the rate on home mortgages, even for 'prime' candidates, is suddenly skyrocketing, irrespective of where the benchmark 10-year Treasury sits.

On top of this there was a slew of bad news on the mortgage originators' front, as well as with the investment banks and anything housing related, and as reflected in July auto sales, the consumer appears to finally be pulling in their horns in earnest.

Plus there were further stories from overseas, such as with IKB, a German bank with a heavy exposure to subprime bonds, or Australian giant Macquarie, the world's largest private manager of infrastructure (ironically) that is also in the investment game. Two of its funds lost 25% in value the past month.

The great trader/strategist Jim Rogers said this week that the U.S. subprime market rout has "a long way to go. This was one of the biggest bubbles we've ever had in credit." I didn't see his comments for Bloomberg include the fact it is a global phenomenon.

Economist Larry Kudlow, the unofficial Mr. Sunshine for the White House, said "the rest of the world is rising" so stop worrying. Economist David Hale wrote in an op-ed for the Wall Street Journal that we were witnessing the "best economy ever." It's all about globalization and corporations maxing out productivity, he wrote.

No doubt hundreds of millions worldwide have emerged from poverty and moved into the middle class?a great thing.

But I also recall similar statements were made before the Asian currency crisis of 1997, after which many an Indonesian went back to eating insects.

Bond expert Tony Crescenzi gave a number of reasons why today's credit crisis is nothing to be concerned about. Crescenzi noted record international reserves, record corporate cash levels, improved balance sheets at even the state level, and a strong banking system.

But that has little to do with Mr. and Mrs. Jones being able to meet their mortgage payment. And I repeat, the real estate bubble is global. Talk to any Londoner, for example. It's about "affordability," and a growing gap between rich and poor.

It's the same story in China and Brazil, Russia and Spain. The rich are thriving, while the little guy is struggling mightily to just make ends meet. Before this cycle plays out you will see massive protests outside the United States, of this I'm sure.

And the pretty budget or balance sheet picture that Tony Crescenzi and others paint will lose its luster as tax revenues and profits dry up. But that's been my 2008 scenario, though it's kind of looking like I may need to move up the timeframe a bit.

Where the likes of Kudlow and Hale are correct, however, is in their dire warnings on protectionism, which is where Congress is headed.

Lastly, as if there wasn't already enough bad news, throw in the fact the U.S. stock market is rigged, though on this I need to be very clear.

Over time, the average investor doesn't have to worry. Good companies will perform like good companies, while bad will perform like bad. But the intra-day activity in many stocks, as well as the broader action at the close of trading, the last half hour, was clearly rigged this past week. The hedge funds and investment banks controlled the activity, totally irrespective of fundamentals, especially Wednesday and Thursday.

--The equity markets declined for a third straight week, with the Dow Jones losing 84 points, 0.6%, to close at 13181. The S&P 500 and Nasdaq lost 1.8% and 2.0%, respectively, and are both off 8% from their recent highs. [The Dow has corrected 6%.]

The inflation news contained in the various reports on the economy was good, plus there was Friday's flight-to-safety. But now all eyes are on the Federal Reserve and its meeting on Tuesday. Just what will they say in the statement? The market is looking for assurance that the Fed gives a damn about their pain and is prepared to act if necessary.

--Credit Crisis, part II: As reported by the Journal, the credit crunch has caused "46 leveraged financing deals around the world to be pulled since June 22, representing more than $60 billion in funding that companies had planned for mergers and acquisitions. The number of deals pulled last year: zero."

Banks are also holding $400 billion in uncompleted management and leveraged buyouts globally.

--I have largely ignored oil and energy as a topic because there has been a lot more of greater import the past few months. Here's my bottom line. The automakers blame high gasoline prices for the recent sales drop as well as housing. That's a copout. Gasoline prices have stabilized, nationwide, below $3.00. It's about housing and consumers having tapped out their home equity lines. The price of crude may be near an all-time high, but the gasoline futures closed the week at $2.02. Tack on 70-90 cents for a pump price. When the futures price gets back above $2.30, then it becomes a worry again. As for $75 oil, it has not had a great impact on earnings, but much higher and you'd shock the system. If, however, the economy were to suddenly slow, chances are good oil would plummet.

--The International Monetary Fund reported that for the first time the biggest contributor to world economic growth this year will be China.

I had to read this twice before I got out the beer coaster and scribbled?$3 trillion (China's economy) Xs 11% GDP growth is $330 billion, vs. $13 trillion (U.S.) Xs 2% is $260 billion. [Rough estimates, of course.]

So this week U.S. Treasury Secretary Henry Paulson went to China to meet with officials, including President Hu Jintao, with Paulson telling Hu, "Both sides should spare no effort to make the strategic dialogue successful as it is at a crucial moment." But China made no major concessions (Paulson's past experience in dealing with the Chinese proving to be worthless yet again) and the U.S. Congress continues to move towards punitive actions that will roil the relationship further between our two countries, as well as lead to increased instability in financial markets.

Of course China has been cooking its own Peking Duck with one report after another concerning shoddy products. This week's entry is a bad one; Mattel's disclosure that it needed to recall one million toys made in China because they were covered in lead paint.

And last week I reiterated how it was almost funny that China decided to diversify its large currency reserves and invest in things like Blackstone's IPO, which then took a bath. Friday's New York Times had a story by Keith Bradsher addressing this topic.

"The first purchase by the Chinese government's new overseas investment fund, a $3 billion stake in the Blackstone Group, has produced an unusual public reaction within China?.

"Chinese bloggers, and even some financial media, have not taken the hammering lying down. They are assiduously tracking the dwindling value of the government stake, and some bloggers and postings in Internet chat rooms [such as on Sina.com] are bitterly questioning Beijing's stock judgment?.

" 'The foreign reserves are the product of the sweat and blood of the people of China, please invest them with more care!'"

I also saw a story on corruption in China on the BBC the other day and the reporter summed up the public's growing distrust of its government in succinct fashion.

You can't vote, you can't demonstrate (or you'll likely be arrested), and you can't even write a letter to the local paper. So the Internet is the only vehicle to express your feelings.

I've said it before and I'll probably say it another 20 times in the future, but I see big problems with the Beijing Olympics next year. The last thing the government wants to have to deal with are massive protests as the world's cameras are fixed on the nation, but this is exactly what the Chinese may get.

In the meantime, China's benchmark Shanghai Composite Index hit a new closing high on Friday and is up more than 60% this year after more than doubling in '06. This is normally a surefire way to keep the people happy.

--For the first time ever, Detroit's Big Three saw its market share fall below 50% in the month of July as auto sales slid across the board, including for Toyota. General Motors' were off 22%, Ford's 19%, Chrysler Group's 8% and Toyota's 7%. As noted above, all blamed the housing slump to some extent.

--Strategist Jeremy Grantham is a bit of an iconoclast, and always worth listening to, and this week he said up to half of all hedge funds may close in the next five years.

--The analysts were so clueless as to the problems developing at American Home Mortgage that the day the stock dropped from $10 to $1, I looked at the earnings estimates and the average for 2008 was $2.92 a share, with one at over $5. Instead the company shut its doors on Friday and laid off over 6,000.

--Employment, by some measurements, may still be strong, but there have been some big layoff announcements recently aside from the one above, including Johnson & Johnson's 4,800 and Unilever's 20,000 over the next four years (with most of the latter in Europe).

--One positive on the jobs front had been Wall Street, where U.S. securities firms added 10,000 positions in June, pushing total jobs in the industry to a new peak, 848,000; higher than the previous record in March 2001. Unfortunately, yet another classic contrarian indicator.

--Two weeks ago I noted a Bloomberg story on The Robin Hood Foundation, a behemoth philanthropic organization in New York founded by hedge fund king Paul Tudor Jones II. The issue was that many of the donors or board members are being paid through the foundation's investments in their own hedge fund vehicles.

So this week I found it rather amusing that one of Tudor Jones' own offerings, the Raptor Fund, dropped 9% in July. I have no idea whether any of the foundation's money is in it, nor do I care, but it's worthy of a little follow-up by Bloomberg, I imagine.

--Good news! The average account balance for 401(k) investors increased from $67,700 at the end of 1999 to $121,200 end of 2006. The median account, though, was $66,600, up from $24,900. But what will the end of 2007 and '08 reveal?

--So I have this computer repair store nearby, I'm there looking for a software program, and I see a sign that they sell new PCs. Seeing as I was on the verge of junking yet another Dell over a problem with the hard drive, I started asking these folks just what they sold. Duly satisfied, they set about configuring a model to meet my needs. [Aside from an AMD chip, you don't know what you're getting but you're dealing with a long-established store and you get a 3-year warranty.]

But what I found interesting was the guy told me "By the way, we install Windows XP. You can't believe how many problems we've had with Vista."

--Hey, would someone please tell Lou Morrell, investment manager and treasurer at Wake Forest University, including oversight of the school's endowment (Wake being my alma mater) to stick to cash? Back on June 22, right after the initial Bear Stearns hedge fund blow-up came to light, Morrell was quoted in the Journal as saying "There is an opportunity out there to buy these loans at a discount." Then on July 27, he is back in the Journal saying he is "still optimistic." We don't need any heroes, Mr. Morrell. I don't want to have to come down there and teach you a lesson or two.

--Sorry, folks, but I couldn't care less about Rupert Murdoch's acquisition of Dow Jones and the Wall Street Journal. I like the Journal, and Murdoch is too smart a guy to mess with it in any big way. Instead, I'm more interested to see how CNBC deals with its new competitor when Fox Business Network is launched Oct. 15. One thing is for certain?there is a coming cleavage war, guys. That's just how these things work.

--Lastly, it's obviously been a good time to hold cash. My 80/20 cash/equity recommended split is ahead of the S&P year to date. But I just have to add from personal experience, in light of the Bear Stearns conference call on Friday that was designed to reassure investors and shareholders, and did the opposite, that back in early 1989, I was sitting in on a conference call at Thomson McKinnon Securities with senior management where our head of retail had the mission of reassuring his fellow executives that all was well; that Thomson was well within all capital requirements. Thomson had a much less complicated financial structure than Bear Stearns does today, yet within weeks Thomson had declared bankruptcy. Years ago, on the issue of derivatives, specifically, I began warning that, 1) Wall Street is peopled with folks who just aren't that smart (4.0 GPAs, yes?common sense, zero) and, 2) the Street really has no idea what it owns. Life lessons now being learned, friends.

In a highly publicized op-ed piece for the New York Times, two war critics, Michael O'Hanlon and Kenneth M. Pollack of the Brookings Institution, returned from a week in Iraq and concluded the following.

"Here is the most important thing Americans need to understand: We are finally getting somewhere in Iraq, at least in military terms. As two analysts who have harshly criticized the Bush administration's miserable handling of Iraq, we were surprised by the gains we saw and the potential to produce not necessarily 'victory' but a sustainable stability that both we and the Iraqis could live with.

"After the furnace-like heat, the first thing you notice when you land in Baghdad is the morale of our troops. In previous trips to Iraq we often found American troops angry and frustrated - many sensed they had the wrong strategy, were using the wrong tactics and were risking their lives in pursuit of an approach that could not work.

"Today, morale is high. The soldiers and marines told us they feel that they now have a superb commander in Gen. David Petraeus; they are confident in his strategy, they see real results, and they feel now they have the numbers needed to make a real difference?.

"(But)?In the end, the situation in Iraq remains grave. In particular, we still face huge hurdles on the political front. Iraqi politicians of all stripes continue to dawdle and maneuver for position against one another when major steps towards reconciliation - or at least accommodation - are needed. This cannot continue indefinitely. Otherwise, once we begin to downsize, important communities may not feel committed to the status quo, and Iraqi security forces may splinter along ethnic and religious lines.

"How much longer should American troops keep fighting and dying to build a new Iraq while Iraqi leaders fail to do their part? And how much longer can we wear down our forces in this mission? These haunting questions underscore the reality that the surge cannot go on forever. But there is good happening on the battlefields of Iraq today that Congress should plan on sustaining the effort at least into 2008."

That's what I call fair and balanced. Of course you can imagine that when O'Hanlon and Pollack appeared on some of the talk shows I caught, they were pilloried by the Left, who saw their work as a betrayal.

Unfortunately, while there has been some success militarily, the political situation is as bad as it's ever been. For starters, if you see an Iraqi parliamentarian vacationing in your neighborhood this month, feel free to give them a piece of your mind.

The Sunni bloc of 44 (of 275 total seats in parliament) formally quit the government this week, while Prime Minister al-Maliki and Co. missed a deadline to compile a list of eligible voters for a constitution-mandated December referendum on the status of Kirkuk. The Kurds want to reclaim it, while the Sunnis and Shia oppose Kirkuk becoming part of Kurdistan. But the parties in 2006 had agreed to hold the vote. This is a huge issue.

And this week we learned that when it comes to the reconstruction effort, the U.S. inspector general said the "asset- transfer process is broken." In other words, all the projects that the U.S. and the coalition complete, which are then handed over to the Iraqis, are in turn dropped by the government. Yet another example of 'what the hell are we fighting for then?' It also should have disturbed some of you to see the aftermath of the Iraq soccer team's stirring win over Saudi Arabia in the Asian Cup final. Who were the first to fire off their guns in celebration? The police and troops?this after the government said it was illegal for the citizenry to do so. Gotta love that discipline. But, heck, only four died in the celebration from stray bullets. And at least there were no car bombs this time.

Separately, another big issue in the region this week was the trip by Secretary of State Condoleezza Rice and Defense Secretary Robert Gates to win support for the Iraqi government. In exchange, Saudi Arabia ($20 billion), Egypt ($13 billion), Jordan, UAE, and others were awarded huge defense contracts as a counter to Iran's increasing influence. For its part, Israel received another $30 billion in future military aid that will fill the coffers of the likes of Boeing, Raytheon, and Lockheed Martin.

Only one thing. Saudi Arabia, Egypt and the others didn't give their support to Iraq as Rice and Gates had hoped because while they fear Iran, they don't want to rile them up either. But the Saudis et al did accept the gifts anyway for appearing on the show. I at least hope Washington follows up and collects the appropriate taxes.

As for the mullahs in Iran, the above was a good excuse to solidify their relationship with Russia, no doubt, as Moscow will be happy to keep supplying the Iranians with the latest in technology, such as fighter jets, on top of the already delivered spiffy advanced antiaircraft systems the Kremlin has shipped. Iran has also had a good time putting people to death this year, some 125 at last count, for numerous crimes and sins.

On a different issue, Tehran does have a point when it questions the U.S.-India Civil Nuclear Accord. Iran is a member of the Nuclear Nonproliferation Treaty, after all, and India (and Pakistan) aren't. I didn't say Iran was a responsible member, please note, but it allows Tehran to score some propaganda points.

On the U.S.-India agreement, I've long been in support of it, so I noted with interest the viewpoint of the Journal's Bret Stephens. Mr. Stephens correctly reminds us that what is worrisome is India's ongoing military ties to Iran, which the Bush administration is downplaying but some in Congress (who have to approve the deal) aren't.

Stephens notes that while India initially ignored the complaints, "the Indians are starting to get it. 'We are aware of our responsibilities and we know the danger of an Iran with nuclear weapons,' says Raminder Singh Jassal, India's deputy chief of mission in Washington. He dismisses the naval visits [between Iran and India] as 'ceremonial' and insists 'we know how to calibrate our relationship [with Iran] without compromising on essentials."

Stephens concludes: "Maybe that's true. Or maybe the U.S. and India have different notions of what a 'calibrated' relationship means. But if Congress is going to punch a hole in the NPT to accommodate India - with all the moral hazard that entails for the nonproliferation regime - it should get something in return. Getting India to drop, and drop completely, its presumptively ceremonial military ties to Iran isn't asking a lot."

And what does Pakistan think of all this? It's just like the old days. They'll increase their ties with China, as today's burgeoning version of the Cold War continues to take shape. It's all so exciting!

Russia: Time to dust off that copy of the film "Ice Station Zebra," starring Ernest Borgnine. Ernie himself, just 90, may need to be enlisted in a new Cold War over the Cold Arctic.

Due to global warming, Arctic sea ice has decreased nearly 20% in the last two decades. This in turn opens up the area to drilling and mining opportunities, as the U.S. Geological Survey estimates the Arctic seabed and subsoil holds as much as 25% of the world's undiscovered oil and gas. Nickel is also said to be abundant.

So it should then come as no surprise that the Russians have staked their claim over the territory with an expedition to plant a flag beneath the North Pole. The expedition leader said "The Arctic is ours and we should demonstrate our presence."

No it isn't. No one is said to have jurisdiction over the Arctic, which is governed by the International Seabed Authority, which means that the U.S., Canada and Denmark, in particular, can stake their own claims.

Eric Posner, a law professor at the University of Chicago, addressed the topic in an op-ed for the Journal.

"At some point, Russia, the U.S. and other countries will carve up the Arctic into mutually exclusive economic zones. Russia is positioning itself to take the lion's share. Russia has major advantages over Canada and the U.S. in the battle over the Arctic. Control over the seas is determined by two things: power and propinquity [ed. 'proximity']. With respect to the Arctic, Russia has both. The U.S. has power but not, for the most part, propinquity; Canada has propinquity but not power. As long as the U.S. and Canada are at loggerheads over the Northwest Passage, they will have trouble resisting Russia's claims to the rest of the Arctic.

"If the U.S. supports Canada's claim to the Northwest Passage, in return for some sort of guarantee of U.S. military and civilian access, the two countries will strengthen their position vis-?-vis Russia. As the world heats up, the two countries need to prepare themselves for the re-emergence of old rivalries, and in the battle over control of the Arctic, the U.S. and Canada are natural allies."

And we still have Ernie. [Pssst?.don't remind the Russkies, but if I remember right, Ernie played a Russian defector. He'll be better able to divine Putin's intentions.]

Meanwhile, Belarus and Gazprom battled over a $460 million natural gas bill that Gazprom claimed Belarus owed. Belarus was looking for a break, being already late in payment, but Gazprom held firm and Belarus relented, paying down enough to satisfy the Russian gas giant for now.

And while Belarussians don't have to worry about a cut-off of supplies, Gazprom had earlier made it clear it was not going to mess with the rest of Europe, which is an improvement in the language used during past gas disputes on the continent.

Switching gears, former Soviet president Mikhail Gorbachev was in the news with some anti-American rhetoric, in referring to his feeling that the U.S. is taking "unilateral actions."

""When I look at today's world I have a worrying feeling about the growth of world disorder. I don't think the current president of the United States and his administration will be able to change the situation as it is developing now - it is very dangerous?.No single center can command the entire world, no one. Current America has made so many mistakes."

Well, Gorby is right in some respects. But then it's not as if the Kremlin is making things any better. Such as in the case of Kosovo. The Washington Post editorialized:

"To its credit, the Bush administration has refused to be cowed by [Russia's attempts to block Kosovo's path to independence.] Instead, officials have made clear that the new negotiations will be limited to 120 days and that regardless of their result the United States will seek recognition of an independent Kosovo?.

"The consequences of a Western failure to recognize an independent Kosovo this year could be severe. Violence could easily erupt in the tense province, as it has several times since 1999. And Mr. Putin could conclude that belligerent obstructionism is a winning strategy for Russia, in Europe and elsewhere. Though besieged with other foreign policy problems, the Bush administration needs to invest in the tough diplomacy needed to ensure that those outcomes are avoided."

Lastly, Sarah E. Mendelson and Theodore P. Gerber had a rather distressing opinion piece in the Washington Post concerning a survey of 1,800 Russians ages 16 to 29 that they commissioned.

"Nearly 80 percent agreed that 'the United States tried to impose its norms and way of life on the rest of the world.' Nearly 70 percent disagreed that the United States 'does more good than harm.'"

It's all about Putin and his rhetoric that young people are devouring like wolves. Putin, after all, likened U.S. policies to those of the Third Reich recently. Mendelson and Gerber conclude:

"The legacy of a new generation of Russians who are nostalgic for the Soviet Union, ambivalent about Stalin and hostile toward the United States may jeopardize U.S.-Russian relations long after Putin is gone."

I'll tell you one thing. If I wasn't white and didn't blend in reasonably well, I would not travel to Russia these days. Otherwise, you're increasingly a target for Putin's emerging goon squads.

Turkey: In the wake of the Islamist AKP's election victory, the nation's top general, Yasar Buyukanit, said "The views of the Turkish Armed Forces do not vary from day to day. We are fully what we said on April 12," [referring to a keynote address in which he emphasized the next president must] "adhere in earnest, and not just in words to?the ideal of a secular, democratic state." [Turkish Daily News]

In other words, the coup plotters are working overtime in case Prime Minister Erdogan installs Foreign Minister Abdullah Gul in the president slot. Gul is a danger, in the generals' eyes, to erode Turkey's separation of religion and state. Gul will, however, resubmit his candidacy.

On the issue of Iraq, Turkey and the Kurds, columnist Robert Novak wrote in the Washington Post:

"High-level U.S. officials are working with their Turkish counterparts on a joint military operation to suppress Kurdish guerrillas and capture their leaders. Through covert activity, their goal is to forestall Turkey from invading Iraq.

"While detailed operational plans are necessarily concealed, the broad outlines have been presented to select members of Congress as required by law. U.S. Special Forces are to work with the Turkish army to suppress the Kurds?.The Bush administration is trying to prevent another front from opening in Iraq, which would have disastrous consequences."

I'm all in favor of decapitating the Kurd rebel effort, but the U.S. needs to do this diplomatically, working with its Kurd allies as well as the Turks. As Novak points out, this new policy hardly makes sense considering the U.S. government has "betrayed" the Kurds so often in the past. Novak concludes that two key Bush supporters, John McCain and Lindsey Graham, "were surprised by Bush during a recent meeting with him. When they shared their impressions with colleagues, they commented on how unconcerned the president seemed. That may explain his willingness to embark on such a questionable venture against the Kurds."

And just a note on the growing worldwide water crisis, I saw in the Turkish Daily News that Ankara residents are facing their first cuts in water in 15 years thanks to a severe drought, with schools now scheduled to open "one month later due to concerns over transmission of communicable diseases."

[One other. With all the rain in China recently, it's amazing to read about the severe drought in other parts of the nation, though in actuality it's no different than talking about record rains in Texas and drought in California. In southern Guangdong, next to Hong Kong, hundreds of thousands face water shortages so the counties have carried out "335 artificial rainfall operations."]

North Korea: Lil' Kim and his band of Orcs have for the first time specifically linked the Bush administration's removing the North from its list of state sponsors of terrorism to any further progress on the nuclear weapons front. An envoy close to the six-party talks told the South China Morning Post, "It is proof that it is going to be a long tough road. Even before the next steps have been hammered out, Pyongyang is setting its own thresholds?they are wanting to make the fullest capital possible out of any residual goodwill for closing Yongbyon."

Japan: Prime Minister Shinzo Abe suffered a crushing defeat in the first significant test at the polls of his leadership, in what was described as the worst drubbing for the ruling LDP since 1955. While the election was for the largely ceremonial upper house of parliament, and not the lower (which selects who is prime minister), the people sent a strong message to Abe that they were tired of all the scandals. Consider this?four ministers have been forced to leave due to corruption disclosures, including one who took his own life. The farm minister, who later resigned, recently showed up at a press conference with bandages all over his face and told reporters, "don't worry about it."

Abe refuses to resign, however, even as the newspapers in Japan scream for him to do so. The issue for the U.S., though, is Abe's dysfunctional government won't be in a position to pursue increased spending plans for the military.

South Korea: The people are beginning to blame America over their hostage crisis in Afghanistan. Earlier, they were blaming the hostages themselves for placing themselves in danger. Regardless, it's getting ugly.

India and Bangladesh: I saw pictures of the historic flooding here and by one estimate, up to one-third of Bangladesh is under water after 20 days of rain, while northeastern India is suffering immensely. Yes, it's monsoon season but it's the worst in memory.

Zimbabwe: [Or as we like to call it around here, "Hell."] The nation began circulating a new $200,000 Zimbabwe dollar note, which means the locals can use it to buy about 400 shares of Google????????????????..oops, I was just informed the note is worth about US$1 on the black market??. Never mind.

Dow Jones -0.6% [13181]
S&P 500 -1.8% [1433]
S&P MidCap -2.1%
Russell 2000 -2.9%
Nasdaq -2.0% [2511]

Bulls 47.2
Bears 26.4 [Source: Chartcraft / Investors Intelligence?huge moves, as you'd expect given the market action.]

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