Week in Review 
For the week 3/3/2008 - 3/7/2008
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

It was another ugly week, though bookended nicely by Monday's assessment of the economy by Warren Buffett, that the U.S. is in recession by "any common sense definition," and Friday's release of the February employment figures revealing a second consecutive month of job losses. While we have to wait for further data to make it official, Mr. Buffett is right.

Stephen S. Roach / New York Times

"The United States is now going through its second post-bubble downturn in seven years. Yet this one stands in sharp contrast to the post-bubble shakeout in the stock market during 2000 and 2001. Back then, there was a collapse in business capital spending, a sector that peaked at only 13 percent of real gross domestic product.

"The current recession has been set off by the simultaneous bursting of property and credit bubbles. The unwinding of these excesses is likely to exact a lasting toll on both homebuilders and American consumers. Those two economic sectors collectively peaked at 78 percent of gross domestic product, or fully six times the share of the sector that pushed the country into recession seven years ago.

"For asset-dependent, bubble-prone economies, a cyclical recovery - even when assisted by aggressive monetary and fiscal accommodation - isn't a given. Over the past six years, income- short consumers made up for the weak increases in their paychecks by extracting equity from the housing bubble through cut-rate borrowing that was subsidized by the credit bubble. That game is now over."

Robert J. Samuelson / Washington Post

"Gloom. Doom. Calamity. Home prices are tumbling. We're bombarded by somber reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last?.

"Even many economists - who should know better - describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four months' a few years ago. But the real problem is insufficient demand. There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices.

"By definition, the 'housing bubble' meant that home prices got too high. Easy credit, lax lending standards and panic buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined the circus.

"Look at some numbers from the National Association of Realtors. From 2000 to 2006, median family income rose almost 14 percent, to $57,612. Over the same period, the median- priced existing home increased about 50 percent, to $221,900. By other indicators, the increase was even greater.

"But home prices could not rise faster than incomes forever. Inevitably, the bust arrived. Credit standards have been tightened, and the (false) hope of perpetually rising home prices - along with the possibility of always selling at a profit - has evaporated. For many potential buyers, prices have to drop for housing to become affordable."

What to do? Samuelson:

"The Treasury has organized voluntary efforts. Some measures being considered by Congress might help. But other proposals - particularly empowering bankruptcy judges to reduce mortgages unilaterally - would perversely hurt the housing market by raising the cost of mortgage credit. Lenders would increase interest rates or down payments to compensate for the risk that a court might modify or nullify their loans.

"The understandable impulse to minimize foreclosures should not be a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today's homeowners makes little sense if it penalizes tomorrow's homeowners. An unstoppable free-fall of prices seems unlikely. Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices."

Wolfgang Munchau had a piece in the Financial Times that reminds us of the nature of the global housing bubble.

"The twin engines of the coming Spanish economic crisis are a collapsing housing market and a current account deficit, now at 10 percent of gross domestic product. The two are related, of course, as the property bubble has been a driving force behind a credit-financed spending boom?.

"I have become a collector of scary housing statistics of late. One of my favorites is a chart from the Bank of Spain, which shows that building approvals and permits have fallen off the edge of a cliff since the end of 2006. At their peak, building permits were rising at an annual growth rate of 25 percent. In the autumn of 2007, their annual change was minus 20 percent - probably still going down. House prices have not fallen nearly as much, but this is only a matter of time, as sellers tend to suffer from a collective delusion at this stage in the housing cycle.

"Between 1995 and last year, Spanish house prices tripled in nominal terms, and doubled in real terms. Several explanations have been offered: a trend for young people to leave their parental homes earlier; a rise in immigration; and the country's popularity among northern European homebuyers. But beware of demand-side arguments. They are usually cyclical, and the cycle is just turning. Also, as supply increases with demand, there is now a glut of unsold homes.

"I would expect real Spanish house prices to fall by almost as much as they have risen over the past 10 years."

Here are some facts, from data released on the U.S. housing market this week. 5.82% of all mortgage loans are delinquent, while homeowner equity nationwide is below 50% for the first time since 1945.

The problems in housing, of course, begat the credit crisis we've been embroiled in in one form or another since August. We've reached the point today, though, that as Timothy Giethner, the president of the Federal Reserve Bank of New York, noted, banks are simply reluctant to take any chances, which is why the system has seized up.

In a speech this week Giethner said, "The rational actions taken by even the strongest financial institutions to reduce exposure to future losses have caused significant collateral damage to market functioning. This, in turn, has intensified the liquidity problems for a wide range of bank and nonbank financial institutions." [Floyd Norris / New York Times]

And there's the longstanding issue of leverage, as in some players have been utilizing gobs of it as we learned once again in the case of a company affiliated with the Carlyle Group, a leading private-equity shop, that received some margin calls and was in default. Thornburg Mortgage also said it was in default, as its shares have tumbled from a close of $11.54 on Feb. 27 to $1.30 today. Speed kills, and Thornburg was forced to admit its future is in serious jeopardy.

When it comes to the investment banks, we're all just sitting around waiting for the next round of writedowns on troubled debt, that is if they ever truly come clean?or can figure out what the value of their securities is when there is no market for them.

It's a vicious circle, as one problem begets another, and lenders batten down the storm shutters, thus causing the situation to deteriorate further if you're left outside without a key.

On the micro front, the week's news outside housing was equally dreadful as readings on manufacturing and the service sector remained at recessionary levels (even if the latter was up slightly from a horrendous January figure), while construction spending is at its worst since 1994 and January factory orders were down a whopping 2.5%.

The Federal Reserve's own survey of regional economic activity said business spending continues to weaken virtually across the country, and auto sales for February were down, including a 13% decline at General Motors vs. year ago levels.

About the only good news on the week came out of Wal-Mart, whose February same-store sales were up a better than expected 2.6%; this as Target's were flat, Kohl's were down 3.8%, and JC Penney saw its sales decline 6.7%. [Other big players such as Home Depot, Macy's and Sears have stopped giving monthly data altogether.]

Then there's oil. Thanks in no small part to the still-sliding dollar, oil closed the week at $105 after an historic $5 move on Wednesday. Gasoline futures, meanwhile, finished up around $2.70, thus ensuring a nationwide average of $3.30+ should we sit at this level for a while. If you want a good look at both food and energy prices these days, check out my current "Wall Street History" column.

Back to housing, Fed Chairman Ben Bernanke has been all over the board on potential solutions, though he now 'gets it.'

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done."

But Bernanke then talks of a bailout and I think Robert Samuelson above effectively deals with that topic.

Lastly, we have this issue of auction-rate securities, or floating- rate bonds, that were sold to Mr. and Mrs. Jones as money market alternatives. This $330 billion market has seized up with the rest, though the issue here is individuals thought they had ready access to their funds and now they're locked out. I talked to a friend in the business on Thursday evening and as he put it, it's lawsuit city.

Not a good time to be aggressive, friends. My 80% cash, 20% equities recommendation of the past two years doesn't look too bad. But even with your cash portion you have to be careful just where you put it.

Street Bytes

--The major averages all closed at their lowest levels since the summer and fall of 2006, as the Dow Jones lost 3.0% to 11893. The S&P 500 and Nasdaq fell 2.8% and 2.6%, respectively. All averages, including the small cap Russell 2000, have already posted double digit declines for the year.

--U.S. Treasury Yields

6-mo. 1.55% 2-yr. 1.52% 10-yr. 3.55% 30-yr. 4.56%

Yields on the short end of the curve continued to plummet on a flight to safety. The Fed next meets March 18 amidst rumors it may be forced to act beforehand, while on Friday it injected $200 billion into the system in an attempt to unclog the pipes and get financial institutions lending again.

Across the pond, the Bank of England and the European Central Bank kept their rates steady, despite clear signs economies there are slowing rapidly. Bottom line, without a coordinated policy among all parties, the dollar is going to continue to get crushed.

--A Conference of Mayors report revealed that tax revenues in ten states, including New York, California and Florida, could drop $6.6 billion.

--Saudi oil minister Ali Naimi, responding to President Bush's call for OPEC to open up the spigots and get more oil on the market, said "This speculation has no link to the stable market fundamentals, which do not need any action. Why then should any new action be taken if the health of the market that we follow?is sound?" Chakib Khelil, OPEC's president, said crude inventories were above their five-year average and that soaring crude prices were caused by the weak dollar and the credit crisis. "It's due to the mismanagement of the U.S. economy that's affecting?economies in the rest of the world."

Bush had earlier complained that "the high price of gasoline has hurt economic growth here" and it was a "mistake to have (OPEC's) biggest customer's economy slow down."

But on the issue of Big Oil, commentator Ben Stein weighed in in his op-ed for the New York Times after watching a Barack Obama campaign speech that took aim at Exxon Mobil.

"I know it's primary season. I know Democratic candidates have to make obeisance to the populist, anti-business wing of their party, just as the Republican front-runner, Senator John McCain, has to make bows and curtsies to the supply-side part of his (and my) party.

"But Mr. Obama's comments about Exxon Mobil are, as folks used to say, fightin' words.

"Mr. Obama is clearly an intelligent man. So it may not be too early to start a small process of education about Exxon Mobil and other oil companies and why attacking them is not smart. First, Exxon Mobil, like all the other gigantic integrated energy companies in this country, is owned not by a cabal of reactionary businessmen holding clandestine meetings in a lodge in the Texas scrublands?.

"Exxon Mobil, in fact, is owned mostly by ordinary Americans. Mutual funds, index funds and pension funds (including union pension funds) own about 52 percent of Exxon Mobil's shares. Individual shareholders, about two million or so, own almost all the rest. The pooh-bahs who run Exxon own less than 1 percent of the company.

"When Exxon Mobil earns almost $12 billion in a quarter, or $41 billion in a year, as it did in 2007, that money does not go into the coffers of a few billionaire executives quaffing Champagne in Texas. It goes into the pension and retirement accounts of ordinary citizens. When Exxon pays a dividend, that money goes to pay for the mortgages and oxygen tanks and in-home care of lots of elderly Americans.

"So, Mr. Obama, which union pension plans - and which blue- collar workers who benefit from them - will be among the first you would like to deprive of the income that flows from Exxon's rich dividends?"

Mr. Stein doesn't mention my own favorite topic when it comes to Big Oil. Without the enormous sums in taxes that they pay, the federal budget deficit picture would be far worse than it already is.

--I've been talking about the critical issues faced by developing market governments and soaring subsidies for food and energy, and the Wall Street Journal had a piece on Tuesday echoing the theme. "Across the Middle East and North Africa, 'this bread subsidy is so politically sensitive that it is very hard to dismantle,' says Akhter Ahmed, a senior research fellow with the International Food Policy Research Institute in Washington." Egypt, for example, is spending about 8% of its gross domestic product on subsidies.

Along the lines of the above, Tim Lang, Professor of Food Policy at the University of Leeds, told Magnus Linklater of the London Times, "We are sleep-walking into a crisis." "At the very least," writes Linklater, "he predicts the end of the era of cheap food, which will of itself amount to a big shift in our eating habits. But if the process of rising costs and diminishing supplies of grain accelerates, as it may well do, we could witness actual shortages of basic foodstuffs. One report last month said that the world is only ten weeks away from running out of wheat supplies after stocks fell to their lowest level for 50 years."

At the heart "is a change in global consuming habits that has crept up on us almost without our noticing," adds Linklater. "In China and the Far East, growing wealth has been accompanied by a taste for Western diets, including, principally, beef, which is now being imported in increasing quantities. There was a time when the idea of an American-style hamburger would have turned the stomach of the average Chinese; not any more."

Separately, Britain's Chief Scientific Adviser said that the rush for biofuels and the potential for food shortages is the "elephant in the room." "It's very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food. The supply of food really isn't keeping up." [London Times]

--Rising food prices do benefit one segment?farmers. In the U.S., farm income is expected to total $96.6 billion in 2008, 10% more than the record set in 2007. [USDA]

--Quotations from Warren Buffett's annual letter to Berkshire Hathaway Inc. shareholders.

"As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight."

"There's been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?

"Our country's weakening currency is not the fault of OPEC, China, etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America's exports, true trade that benefits both our country and the rest of the world."

--Some in Congress are furious that Boeing lost out on a $40 billion contract to build a new refueling aircraft for the U.S. military, particularly those in Washington and Kansas that have Boeing plants. [The total could eventually grow to $100 billion over 30 or more years.]

The controversy stems over the awarding of the contract to a partnership between U.S. defense contractor Northrop Grumman and Europe's Airbus (part of the European Aeronautic Defense and Space Company?EADS). The planes will be assembled in Alabama and Mississippi, but largely constructed in Europe.

The congressional dispute is likely to go on for some time as Democrats blast John McCain for his role in scuttling a previous deal to let Boeing supply the tankers. Dem. Rep. Rahm Emanuel of Illinois said, "Having made sure that Iraq gets new schools, roads, bridges and dams that we deny America, now we are making sure that France gets the jobs that Americans used to have. We are sending jobs overseas, all because John McCain demanded it."

--Shares in Citigroup are down over 50% thus far in '08, the worst showing among the 30 stocks that make up the Dow Jones industrials, as CEO Vikram Pandit attempts to dispel rumors the bank needs $billions more in capital. One analyst predicted Citi would take an additional $15 billion in writedowns due to its mortgage investments.

--Just 15 months ago, Merrill Lynch acquired subprime mortgage originator First Franklin Financial Corp. for $1.3 billion. Today, it's pulling the plug and 650 have lost their jobs, not that these same folks wouldn't have lost them eventually anyway. Former CEO Stanley O'Neal blew this one, big time.

--According to a European study on housing, home prices in Ireland declined 7% in 2007, the worst performer in the region. Home prices in Germany fell 6%.

--The World Health Organization said the bird flu virus is "firmly entrenched" in Asia and a pandemic among humans is still a possibility. Expert Takeshi Kasai said "The virus itself keeps changing."

--Southwest Airlines said we shouldn't be concerned that it flew 60,000 flights with planes that were overdue for inspection. --General Motors said it expects to bring a lithium-ion battery powered hybrid engine system to market in North America in 2010, which could result in a 15 to 20 percent increase in fuel economy over today's nonhybrid vehicles.

--According to a study by AAA, traffic accidents cost U.S. motorists $164.2 billion a year, or about $1,051 per person when taking into account factors such as property damage, lost earnings, medical costs, emergency services, legal costs and travel delays. By comparison, the costs associated with congestion are $67.6 billion, or about $430 per person.

--In a scary development, the Food and Drug Administration has upped its estimate of the number of patients who may have died as a result of reactions to the drug Heparin from four to 19, after the FDA detected a "contaminant" in samples of the Chinese- supplied blood-thinning drug used widely in surgery and kidney dialysis. So add this episode to the other product safety issues emanating from China. The FDA was able to isolate the problematic batches as being sold by Baxter International through a plant outside Shanghai, while acknowledging FDA officials had never inspected the facility. Heparin is made from a compound found in pig intestines.

--But it's not just China with serious issues on the medical front. This week, 40,000 in Las Vegas learned that they were receiving Third World type treatment at a clinic that for at least four years was reusing syringes and vials of medication, thus exposing the patients to the potentially fatal hepatitis C virus, as well as HIV. The number involved represents the biggest public health notification operation in U.S. history. Thus far, six acute cases of hepatitis C have been confirmed. This is unbelievable. Investigators were told the practice was an attempt to cut costs.

So the real issue now becomes, just how many similar clinics are operating in such a fashion these days? This obviously isn't the only one.

--CNN's viewership exploded during the month of February, up 150% in prime time to 614,000 in the key demographic, 25 to 54, vs. 454,000 for Fox News and 326,000 for MSNBC.

Meanwhile, CNN parent Time Warner is seeking to create an alternative to Microsoft's offer for Yahoo; folding its AOL unit into Yahoo. Of course while Yahoo dithers, its value to any prospective buyer goes down in this ugly market environment.

--Radio advertising revenue fell 2.6% in 2007 over 2006 and is basically back to the levels of 2003.

--Fidelity Investments has settled with the SEC and will pay an $8 million fine for accepting more than $1.6 million in gifts from brokers seeking trades, an investigation that goes back years. But what I love is the fact Vice Chairman Peter Lynch is among 13 employees singled out for taking inducements that included the now-infamous $160,000 junket to Miami, where bachelor party attendees were entertained by female escorts and supplied with ecstasy pills. [Lynch didn't partake in this one.]

The central issue is that in accepting the gifts, Fidelity then didn't seek the best possible terms when trading for its funds because employees routed the transactions to the favored brokers.

Lynch himself, while not admitting or denying guilt as part of the settlement terms, was cited for receiving "numerous" free tickets to concerts, theater and sporting events. He agreed to forfeit more than $20,000, representing the value of the gifts, plus interest, as reported by Bloomberg News. In a statement, Lynch said "I never intended to do anything inappropriate." But, c'mon, Peter, you knew the rules.

Lynch, by the way, built his track record on flipping IPOs when Magellan was a tiny little fund, not because he was necessarily a brilliant investor, though I'd be lying if I didn't say I used his general investment principles as much as the next guy when giving a generic investment seminar.

--Warren Buffett passed Bill Gates to become the world's richest man, according to Forbes magazine's annual survey. Buffett is now estimated to be worth $62 billion, with Mexican mogul Carlos Slim in second at $60 billion and Gates 3rd at $58 billion. Facebook founder Mark Zuckerberg, 23, joined the list as the world's youngest billionaire at $1.5 billion. Other notables? Oprah ($2.5bn), Donald Trump ($3bn) and JK Rowling ($1bn).

Foreign Affairs

Russia: Dmitry Medvedev captured 70% of the vote in the presidential election (exactly the number I predicted last week, incidentally), one that was called a farce by the few Western observers on the ground. Medvedev, 42, said after that under the constitution the president runs foreign affairs. But who will really handle it, new prime minister Putin (as of May 5) or Medvedev? We should get a firm answer in July at the next G-8 summit in Japan, but as the Washington Post editorialized, "the better question is why either of them should be invited."

For Medvedev, however, it's really all about oil, keeping the people happy, and rising wages?without inflation. In other words, an impossible task.

Ralph Peters / New York Post?on the vote and Russia's future.

"The only positive thing about the no-real-choice vote is that today's Kremlin crowd had the restraint to hold down the we- love-Medvedev tally to 70 percent, rather than the 95 percent- plus demanded by the old USSR's gerontocrats.

"The truth? Russian citizens are content to be led like sheep. As long as there's a bit more fodder in the trough than there was yesterday, Russians won't protest against being herded around: Their primary characteristic over the centuries has been the determination to avoid responsibility.

"It's incomprehensible to us, but most Russians want a good-but- strong czar to make their choices for them. [Oh, and they'd rather not work too hard, thanks.]

"I almost wrote that Russia isn't a banana republic - despite its execution of journalists, the imprisonment of political opponents, state theft of property, the Kremlin's sponsorship of domestic terrorism (Stalin's stage-managed murder of Sergei Kirov comes to mind) and belligerence toward its neighbors.

"But I would've been wrong - not only because Russia isn't a republic of any sort, but because Putin's Russia is headed for exactly the fate that's gutted so many developing countries: the crash after the boom."

Peters then related a conversation he had the other week with former Czech president Vaclav Havel, who said:

"A dictatorship of a fairly new type is coming into existence to the east of the area under NATO protection. All basic human and civic freedoms are gradually and quietly being suppressed under the banner of the aggrieved ideology that everybody is doing Russia wrong or that they are all covert enemies.

"The system of formal democracy and one-party rule familiar to us from Communist times is being revived. The secret police is becoming all-powerful. The nation's enormous wealth is passing into the hands of the powerful or their friends?

"Everything that is free and has major influence is destroyed in subtle ways?.Troublesome people disappear or are mysteriously murdered. Political murders and even major terrorist operations are never properly investigated.

"An enormous nation inhabiting enormous territory is lapsing into apathy and adapting to the status quo. It is accepting the propaganda-fed cult of the leader, that is sometimes reminiscent of the cult of Stalin?.

"I believe none of us has the right to remain silent and pretend?that we can't see these things. Politeness and falsehoods have never yet preserved the peace."

[On the natural gas front, Gazprom cut supplies, twice, to Ukraine, before relaxing some as the state-owned energy giant continues to say Ukraine has been slack in paying off its debts.]

Iran/Iraq/Israel: Thursday was an absolutely awful day for planet Earth with the horrific terror attack on the seminary in Jerusalem and the car bombing in what had been thought to be a safe part of Baghdad that claimed at least 68 lives. Further, this week you had the visit to Iraq of Mahmoud Ahmadinejad, the first such visit by an Iranian leader since the 1980-88 war between the two. Ahmadinejad said "the two parties are determined to strengthen their political, economic and cultural cooperation," then he turned his sights on Washington, saying "The Iraqi nation does not want the U.S."

On Tuesday, the UN Security Council voted for a third round of sanctions against Iran's nuclear program that will prove as useless as the first two in terms of forcing Tehran to suspend it's uranium enrichment operation. Iran is holding key parliamentary elections on March 14 that should signal increased support for Ahmadinejad and the hardliners, seeing as the president has purged many of the reformers from his cabinet, while keeping others that pose a threat off the ballot.

In Israel, U.S. Secretary of State Condoleezza Rice convinced Palestinian President Mahmoud Abbas that he should return to the negotiating table, then a day later a Palestinian gunman somehow got into the crowded library of the leading seminary in West Jerusalem, killing 8 before he himself was killed. While it's unknown as of this writing exactly who the terrorist was representing, Hamas immediately described it as a "natural reaction" to Israeli military actions in the Gaza Strip. Israel vowed revenge, though the government of Prime Minister Olmert also insisted it would continue with the peace effort.

Calev Ben-David / Jerusalem Post

"Rarely have terrorists chosen their target with so much malicious care as in Thursday night's attack.

"In striking the flagship institution of the religious Zionist movement, a Jerusalem landmark whose history is linked with the founding and fulfillment of the Jewish national home in the Land of Israel, the gunman aimed his weapon at the heart of the Zionist enterprise.

"If the goal was to outrage the general public and to inflame that particular segment of it most skeptical of the possibility of Israel one day coming to terms with its most immediate Arab neighbors, then the bullets struck home with deadly and accurate force?.

"This will be a sharp blow for those Israelis, especially Jerusalemites, who have allowed themselves to let their psychological guard down since the second intifada petered out?.

"The Olmert government, which until now has been able to contain political fallout from the rocket fire on Sderot and Ashkelon in part because of the absence of major attacks elsewhere in the country, will now find its margin of error - and survival - dramatically narrowed."

Amir Mizroch / Jerusalem Post

"The people directly affected by the deadly terrorist attack?are not just students, their relatives and friends, but the much wider larger segment of the religious Zionist public?.

"Being messianic religious people, the religious Zionists are going to see this attack through the prism of messianic prophecy?.

"The fact that the Foreign Ministry has already come out with a formal statement saying the attack won't derail the talks with the Palestinian Authority will only fuel the anger of the settler population this weekend?.

"Very few people outside the religious Zionist population have even heard of Mercaz Harav, let alone know somebody who studies there. This was not an attack aimed at the wider Israeli public, but a strategic attack against a very vocal public who will be demanding action of the government. There may even be some on the fringes of the settlement movement who will want to take the law into their own hands."

Prior to the massacre, President Bush reassured all parties that with ten months remaining in his term, there was still "plenty of time to get a (peace) deal done."

I, on the other hand, simply believe we are one step closer to Israel having to act preemptively against Iran's nuclear weapons program.

Colombia/Venezuela/Ecuador

Last weekend, Colombia raided a FARC rebel camp one mile inside Ecuador, killing 23, among whom was Raul Reyes, FARC's No. 2. The government of Colombian President Alvaro Uribe apologized, but Ecuador and Venezuela both condemned the move and sent troops to their respective borders with Colombia. Venezuelan President Hugo Chavez said "Dracula's fangs are covered in blood."

Colombia claimed to have computer evidence, captured in the raid, of Venezuela's complicity in working with FARC, to the tune of some $300 million in aid, while Ecuador's current leadership was also shown to have FARC connections.

There were rumblings of war during the week but Colombia's military is superior to its rivals and the White House wouldn't hesitate for a second should Colombia be attacked. By Friday, though, all parties agreed to stand down.

China: The Pentagon expressed concerns over China's continued arms buildup as Beijing announced it was hiking expenditures another 18%, up to $59 billion or so, officially, but more likely two or three times that according to many experts. The U.S. says that China is focusing on weapons that would disable enemy satellites in a conflict, while China says the U.S. needs to abandon Cold War thinking.

But then there is China's water crisis, specifically in Beijing, as the city draws from already rapidly declining underground sources. Is this thus another concern for the Olympics in August? Consider this. Beijing is stealing water from neighboring Hebei province, which has been enduring a long drought. Plus you have the issue of the water's quality itself.

Spain: Contentious elections are being held here on Sunday as the Basque separatist group ETA is suspected of killing a former city councilman in northern Spain on Friday, just shy of the fourth anniversary of the March 11, 2004, train bombings in Madrid that claimed 191 lives.

Northern Ireland: After more than 40 years, the Rev. Ian Paisley announced his retirement from the leadership of the Democratic Unionist Party. Martin McGuinness of rival Sinn Fein, with whom Paisley finally came to terms in the 2007 power-sharing agreement, said "I think that he will be fondly remembered by the people of Ireland - north and south - for the very courageous leadership that he showed." McGuinness was being polite.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $974
Oil, $105.46

Returns for the week 3/3-3/7

Dow Jones -3.0% [11893]
S&P 500 -2.8% [1293]
S&P MidCap -3.5%
Russell 2000 -3.8%
Nasdaq -2.6% [2212]

Returns for the period 1/1/08-3/7/08

Dow Jones -10.3%
S&P 500 -11.9%
S&P MidCap -11.3%
Russell 2000 -13.8%
Nasdaq -16.6%

Bulls 41.9
Bears 36.6 [Source: Chartcraft / Investors Intelligence]

*Thanks to all who attended my "Evening with Willie Wilson" on Thursday that proved to be a rousing success (or so everyone told me). You are a great group of friends and I won't forget your support at a time when I needed you in a big way.

Brian Trumbore

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