Week in Review 
For the week 3/10/2008 - 3/14/2008
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street?Bailout!

Who needs a beer? I do.

Steven Pearlstein / Washington Post

"Last week, it was a $200 billion cash-for-bond swap for the banks.

"This week, it was a $200 billion bond-for-bond swap for the big investment houses.

"If they keep this up, pretty soon you'll be able to walk into any Federal Reserve bank and hock that diamond brooch you inherited from Aunt Mildred.

"Forget all that nonsense about the Bernanke Fed being too timid or behind the curve. In the face of what is turning into the most serious financial market crisis since the Great Depression, the Fed has been more aggressive and more creative in using its limitless balance sheet - in effect, its ability to print money - than at any time in history.

"We can argue till the cows come home about whether this is a bailout for Wall Street. It is - but only to the extent that it is also a bailout for all of us, meant to prevent a financial and economic meltdown that drags everyone down with it. In broad strokes, we're going through a massive 'de-leveraging' of the economy, wringing out trillions of dollars of debt that had artificially driven up the price of real estate and financial assets, and, more generally, allowed Americans to live beyond their means."

Mr. Pearlstein wrote the above on Wednesday, so he wasn't aware at the time that Friday morning we'd learn the Federal Reserve, working with J.P. Morgan Chase, opted to bail out Bear Stearns in a story that will be reverberating over the weekend as Bear goes 'bye-bye.' In a nutshell, Bear was a purveyor of crapola, tons of mortgage-backed securities based on faulty (fraudulent) ratings, and its clients finally began to catch on that this was a serious issue. Once they began to pull their cash out, voila! A run on the bank.

And after listening to Bear CEO Alan Schwartz the other day with CNBC's David Faber, I can't help but remind you of something I wrote last Aug. 4, 2007, following a very similar incident, problems with Bear's hedge funds.

"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."

It's amazing to think that was already eight months ago and, in hindsight, that Bear Stearns lasted this long. Nothing changed, after all. It just took some time for others to realize what some of us knew all along. Bear and others of its ilk are essentially a house of cards.

But for a brief moment on Tuesday, after the Federal Reserve came up with its latest effort to save the world, and the Dow Jones rallied 400 points, all was calm, all was bright. The Financial Times opined:

"Tuesday's move was different. The Fed is not offering to lend cash in exchange for bonds, it is offering to lend up to $200 billion of Treasury bonds in exchange for triple-A mortgage- backed bonds. Unlike mortgage bonds, Treasuries are still easy to borrow against in the private markets, so making it possible to exchange one for the other is a sensible attempt to ease the short- term pressure on leveraged investors.

"Whether it has any effect depends, as it has with every central bank intervention since last July, on whether this is a crisis of liquidity or solvency. If it is simply the case that banks do not have the cash to lend against mortgage bonds then this will have an effect. If, on the other hand, banks are worried that the mortgage bonds or their owners will default, then they will be unlikely to lend even if they can refinance at the Fed."

For now it's the latter.

The Fed is hoping, though, that their move to swap mortgage- backeds for Treasuries, for up to 28 days, helps stabilize the markets, but one of the many problems is you might say you have a AAA-security, but is it really? We've already seen how the ratings agencies screwed up royally in assessing the risks inherent in the pools of mortgages they were asked to grade. The Fed, by its action, claims this helps take care of the counterparty risk, but the bigger issue is still falling home prices. Since the Fed is not actually buying the securities (and I'm definitely not saying they should), what is the value? It's still to be determined.

Nothing has worked to unclog the pipes of the financial system since the credit crisis first hit last July, and the spreads between Treasuries and government-sponsored entities such as Fannie Mae have only come down minimally from record levels going back to 1986; which means that mortgage rates will remain higher than Treasury rates would otherwise dictate, not exactly a way to solve the housing crisis.

Speaking of Fannie, Barron's had a big piece on its shaky balance sheet. But since Fannie owns or guarantees ? of all U.S. home loans outstanding, it's simply too big to fail (as well as sibling Freddie Mac), and certainly the Federal Reserve has told you as much with its treatment of Bear Stearns.

I have to admit, events are taking place at lightspeed and it's not easy keeping track of it all. This was such an historic week, for example, that events such as Thornburg Mortgage's potential collapse, along with the actual collapse of a large fund, Carlyle Capital (part of private-equity giant Carlyle Group) took a back seat to all of the above.

Shares in jumbo loan maker Thornburg fell to 70 cents before rallying to $3 and then finishing the week around $2.30, after the Fed's actions to backstop the mortgage market. But here again, while Thornburg loves to tell anyone who will listen that it hasn't dabbled in the subprime sector and that its paper is AAA, is it? Much of it is murky Alt-A (a level above subprime), where even two of the Three Little Pigs weren't required to submit full documentation in acquiring their homes of straw and sticks. Only the pig that bought the house of bricks is still solvent today, yet S&P is rating the pool comprised of all three as AAA.

Then there is Carlyle Capital, a bond fund that levered up some 32 times and when its lenders began to question why the very same Three Little Pigs had become part of Carlyle's balance sheet too (remember, the pigs were sliced and diced into different classes of securities or tranches) said, hey, hold on a second, you have to cough up more collateral or we'll pull your loan. Carlyle couldn't and the lenders took possession of their share of the bacon. As Carlyle Group's CEO David Rubenstein said, "the golden age of private-equity is over." So is the golden age of Wall Street in general, you could add.

More broadly, Harvard economist Martin Feldstein, a member of the National Bureau of Economic Research, the group that dates business cycles, told an audience on Friday, "I believe the U.S. economy is now in recession. Could this become the worst recession we have seen in the post-war period? I think the answer is yes. I would emphasize the word 'could.'"

Lastly, I am invoking my '24-hour rule' when it comes to Friday's Fed action to bailout Bear Stearns. We'll soon learn more details. For now, I agree with economist Mark Zandi who said that normally, 99% of the time you don't want the government interfering in free markets (i.e. let Bear Stearns fail), but the other 1% of the time you do, and then you want the government to act quickly in order to prevent a far worse problem. This is beginning to feel like that 1%.

Street Bytes

--Tuesday's 400+ point rally was the biggest in the Dow Jones since July 2002, while the S&P 500 registered its single-biggest advance since April 2001. Yet in the end, stocks finished mixed, literally, with the Dow Jones up 0.5%, the S&P down 0.4%, and Nasdaq unchanged. If you're a technician, the market looks awful.

--U.S. Treasury Yields

6-mo. 1.31% 2-yr. 1.46% 10-yr. 3.43% 30-yr. 4.36%

Rates fell across the board in a flight to safety. The Fed meets on Tuesday and the bond market is projecting that Bernanke and Co. will lower rates a full 75 basis points.

The government released its consumer price index for the month of February and it revealed that prices were unchanged; including the core reading, ex-food and energy. Well, that was simply unbelievable and ignored by all. Meanwhile, the retail sales figure for February was down 0.6%, when an increase of 0.2% was expected. Yes, I'm going to cherry pick my stats and believe this latter one because it certainly makes more sense than the CPI number.

Separately, I received a note from a loyal reader and friend of StocksandNews that I was taking it too easy on Mr. Bernanke recently. I sure don't think so. I can't call him Clueless Ben every single week. I don't want this site to become like one of those shouting matches on "Hardball" or "Hannity and Colmes," after all. I correctly said the Federal Reserve was irrelevant last summer, referring to its inability to prevent a recession resulting from the housing bubble. But I added that the Fed was relevant as to the degree of pain that we would all feel, or more simply, preventing a recession from turning into a Depression. No one can make that judgment yet as to their success or failure in this endeavor, but if you follow the global scene as I do, it's pretty easy to come up with a scenario that is depressing and Bernanke's legacy has already been cemented by his inability to recognize the implications of the bubble going back to last spring. You can throw in birdwatcher Paulson on this last one as well.

--The Treasury Department said the federal government's budget deficit for the month of February was an all-time best, $175.6 billion. Congratulations, guys! Now it needs to be pointed out that due to the leap year, the figure was actually $33.6 billion higher than it would have been otherwise, but for the first five months of fiscal 2008 (beginning Oct. 1), the deficit is already $263.3 billion, 62% higher than the same period for fiscal 2007. Last month, the government paid net interest on the federal debt of $20.2 billion. Now isn't that special.

--I was not able to fully analyze the Treasury Department's proposal for stabilizing (and stimulating) the housing market, but there didn't appear to be anything that would remotely help things today. As for Senator Dodd's and Congressman Frank's own proposal to help homeowners, as much as they said it's not a bailout, it is. I'll have more on both of these next time, assuming another governor isn't caught with "Kristen," or Merrill Lynch doesn't suffer a run on the bank.

--Lehman Brothers is laying off 5% of its employees, or 1,400, but there is talk on the Street that total layoffs for the industry could reach 20% because traditional lines of business such as M&A and debt origination are off 20% to 80%.

--As Robin Sidel wrote in the Wall Street Journal, when the large banks report first quarter earnings next month, look for the admission of big hits to their home-equity loan portfolios. "While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent home-equity loan, especially if another bank holds the primary mortgage."

--Economist Robert Samuelson [Washington Post/Newsweek] on OPEC's renewed clout.

"The American approach is to rant at foreign producers on the silly presumption that they should subordinate their interest to ours. The resulting self-righteousness rationalizes a refusal to do much that would actually influence their behavior and limit their freedom of action. It was only last year that Congress raised fuel-efficiency standards for new cars and light trucks: the dampening effects on oil consumption will be years in coming. We have steadfastly rejected higher gasoline taxes to curb unnecessary driving and strengthen demand for fuel-efficient vehicles (better to tax ourselves than let foreigners tax us through higher prices). And we have consistently restricted oil drilling in Alaska and elsewhere.

"It is a fair commentary that, by doing so little to check its own thirst for imports, the United States has unwittingly contributed to OPEC's present triumph. The extent of that triumph will be tested this year and next?.We should be taking the hard steps to limit its power. Considering our past complacency, we probably won't."

As for crude itself, oil traded over $110, despite soaring inventories in this country, thanks in no small part to the cratering dollar and a general desire to hold hard assets, which is also why gold traded above $1,000 for the first time ever.

--The FBI is investigating Countrywide Financial for possible securities fraud with the central issue being, what did Countrywide know about the financials of its borrowers before it proceeded to repackage the mortgages into securities?

--Freddie Mac's CEO said we are only 1/3 of the way through the decline in home prices.

--The median home price in the six-county Southern California region fell to $408,000 in February, the lowest level since October 2004 and 19% below the peak of $505,000 last summer.

--On 2/16/08, I led off with the tale of a new development, Windy Ridge, in Charlotte, N.C., where as of late '07, 81 of the 132 houses were in foreclosure. So I note with interest a similar depressing story, this one out of USA Today, that Peachtree Hills, another Charlotte development, has 115 of 123 homes in foreclosure. That's unreal. And to think Charlotte has been one of the better markets in the nation.

[One side bar?the USA Today story by Haya El Nasser notes the Dept. of Housing and Urban Development has a program allowing firefighters, police officers and teachers to purchase foreclosed homes at 50% of their listed price.]

--Homebuilder Hovnanian said the gross margin on its new homes in Florida is a whopping 2%. The average price of homes sold by it nationwide in the first quarter was down 15%.

--Japan and the UK reduced their growth forecasts for the year.

--Toyota is slashing production in the U.S., while Chrysler is forcing its workers to take a two-week vacation this summer as it shuts operations nationwide to cut costs. Not exactly signs of an economy that is "fundamentally sound," as Treasury Secretary Paulson and President Bush like to say.

--Since the New York Fed was heavily involved in structuring the bailout of Bear Stearns, check out my "Wall Street History" piece and a speech N.Y. Fed president Timothy Geithner gave recently.

--China's inflation rate was 8.7% in February, with food prices rising 23%.

--I wrote the following on 9/28/02 in this space. Sure, I was only 5 ? years early, but it's still pretty good in hindsight.

"Then there is the ongoing issue of derivatives and the exposure on some balance sheets. This week, EDS's announcement that it took a hit on its own share price (by screwing around with put options?i.e., derivatives) is but the tip of the iceberg. One simple truth bears repeating, that being the fact that the investment community has been hoodwinked by the power of derivatives, and some never seem to learn until it's too late.

"As for yours truly, I await the day when we have a massive accident at the likes of J.P. Morgan Chase. You think these guys are really rocket scientists and understand how all their instruments operate in various, chaotic scenarios? Do you think they understand that the other side of some of these trades may not be able to meet their end of the bargain? It's coming, folks. Fasten your seatbelt. Whether it's JPM, Citigroup, Merrill Lynch, Fannie Mae or some other player, something huge is lurking out there."

--Blackstone Group, manager of the world's largest private- equity fund, saw its profits tumble 90% in the fourth quarter as chairman and founder Steve Schwarzman warned: "Difficult market conditions in the U.S. and Europe will continue in 2008 and there is little visibility on when these conditions might improve."

But fret not for Schwarzman himself. His total compensation for 2007 was $350 million, according to a recent filing, though $309 million of this was previously disclosed as part of the firm's IPO last June, which as you know was literally the peak for the private-equity game.

So this week Schwarzman was also in the news for his philanthropy, pledging $100 million for the New York Public Library's $1 billion expansion program. The landmark building on 5th Ave. will now be renamed after him.

As reported in the New York Times, "Mr. Schwarzman said it was the library that proposed renaming (it). 'They said, 'We'd like you to be the lead gift and give us $100 million and we'd like to rename the main branch after you,'' he said. 'I said, 'That sounds pretty good.''"

Of course. They all need their names in lights (or granite) in the end.

--I support John McCain, but there are some skeletons that the Democrats can exploit; such as the fact his campaign co- chairman, former Representative Thomas Loeffler, a Texas Republican, runs a lobbying group that earned $220,000 working for the European Aeronautic Defense and Space Company (EADS), part of the consortium that beat out Boeing for the $40 billion+ refueling tanker contract. You'll recall how McCain was instrumental in the scuttling of an earlier Air Force plan to lease tankers from Boeing. Personally, I believe the Air Force acted in our nation's best interest in awarding the contract to EADS and Northrup Grumman, but McCain is vulnerable.

--Two giants in the health-insurance sector, Wellpoint and Humana, saw their shares taken out back and shot as they reported accelerating health-care costs are eroding profits.

--Remember, sports fans?.both President Bush and Treasury Secretary Paulson reiterated, "A strong dollar is in our nation's best interest." I feel so much better, don't you?

--Inflation Watch, part XXXII. Josh P. passed along this comment from Domino Pizza's CEO. "For nine years in a row, if you go back and you look at what was the average cost for a bushel of wheat, we operated at about $3.75 a bushel. And, from a volatility perspective, if the wheat market was high, it would go up to $4.25, and, if it was low, it would go down to $3.25. But it would operate in a very low volatility band. So we wake up one day in 2007, and wheat begins to move. We could have a whole 'nother discussion about how and why that happened. But, nevertheless, suddenly wheat is at $7, $8, $9, and $10. And then it goes to $11, $12, and $13. And, today, it's north of $20."

--When I was in Las Vegas last month, I got a kick out of the stories that somehow it was immune to the problems in the overall economy. Wrong. For the first time since 2001, gambling revenues fell in the month of January, 1.3% vs. a year ago levels, while statewide, revenues were off 5%. One thing is for sure, by year end there are going to be some terrific hotel deals.

--The Associated Press conducted a study on virus threats in gadgets such as the iPod and concluded that many of the viruses were preloaded, including ones that steal passwords, at manufacturing facilities in China. Sloppiness is being cited, rather than organized sabotage, but there is no way of really knowing at this point.

--Southwest Airlines grounded 44 of its 737s until it could verify that the aircraft were safe, having been cited by the FAA for failing to inspect them properly. Southwest then admitted four required repairs. This whole mess has definitely given the air carrier a black eye and we'll know soon enough whether it impacts the bottom line.

--In a PricewaterhouseCoopers survey of real estate markets across Europe, Moscow's was rated the hottest, with Istanbul, second. London dropped from 2nd last year to 15th out of 27 cities on the list.

--NASCAR driver Tony Stewart makes "Week in Review," a first for the sport, possibly, with his harsh criticism of Goodyear and the tires it supplied at last week's race in Atlanta. They are "the most pathetic racing tires I've ever been on in my professional career?.When you're stuck in a car for 3 ?-4 hours and it drives like crap, you're going to be upset about it."

Stewart was directing his furor at the designing engineers, and later apologized to the workers.

"Think about it. Every year we've blown tires. It's like, how many years have they been doing this? At this stage of the game, how do you not figure it out? How could you have not figured out how to not blow tires and build a competitive tire?"

Goodyear has exclusive rights to NASCAR. Other drivers concur with Stewart. I bring this up in this space because it's an interesting commentary on quality and, in essence, competitiveness. We had this discussion in the 1970s and 80s when Detroit's quality was called into question as the Japanese auto manufacturers began to gain their toehold.

--Shares in Bear Stearns traded at $159 last April 25. They closed the week at $30. $Billionaire investor Joseph Lewis has lost about $800 million on his position in the company. Stay away from the guy if you see him on the street.

--My portfolio: The China biodiesel play reported on its fourth quarter and it couldn't have been better as the company gears up for its mammoth expansion, still slated for completion by year end. But the stock barely moved and I slammed the CFO in private for not following my advice after a recent Barron's piece questioning its auditor; as in the company should have issued a statement of some kind, any kind. I told you in this space that this was Troubleshooting 101. It's frustrating. I still like the story and am holding for the long term. One thing is for sure, the demand in China for its product will remain strong, regardless of the economic environment over there.

I also own this California solar power play I've written of and it, too, reported strong revenues, but in this instance a net loss greater than expected. Its shares fell on the news but it was interesting how bullish the CEO is on the future, despite the housing recession. I bought a little more at the lows, actually.

Lastly, I sold off some very small positions that I had on the books just to raise a little more cash and unclutter my portfolio.

--Jimbo pointed out that Client 9 could not secure the services of "Kristen" until cash was delivered, even though Client 9 had a long history of doing business with the outfit. So Jimbo correctly concludes, "What further evidence do we need that there is a serious credit crisis when the Governor of New York cannot order off the menu without paying up front and, further, leaving a cash balance?"

--Finally, speaking of Client 9, Eliot Spitzer, yes, I was a supporter of his when he was attorney general and no doubt he's easy game today. I also have more important people to feel sorry for than the soon-to-be-former governor and his family. They'll all do just fine.

But you will never convince me Spitzer didn't do a lot of good in his initial crusading efforts against Wall Street, such as in uncovering the research scandal. I also long argued that former New York Stock Exchange chairman Dick Grasso, one of Spitzer's major targets, was little more than a carnival barker, especially in the days after 9/11, and of course his pay package was egregious. It's all in these pages.

But Spitzer himself was out of control and his tactics were too often over the top. His legacy is a complicated one. Wall Street needed more oversight and he helped set it in motion, but as a person, what a hypocritical slimeball.

Foreign Affairs

Iran: Parliamentary elections were held on Friday for 290 seats, though only after 1,700 candidates were disqualified by the hardliners headed up by President Mahmoud Ahmadinejad. The vote is a total sham. Some argue, however, that a significant number of those who will be elected are nonetheless critics of Ahmadinejad's economic policies, especially with inflation running close to 20%. Supreme Leader Ayatollah Ali Khamenei, though, while at odds with the president on many issues, urged his people to support the conservatives. As for the people themselves, there is a tremendous sense of apathy with the result not in question. The final tally will however provide a sense of whether or not Ahmadinejad faces problems with the presidential election in 2009.

On the nuclear weapons program issue, the Wall Street Journal editorialized:

"It has now been nearly five years since the Bush Administration began pursuing a multilateral track on Iran, a course it has followed patiently nearly to the end of its term. That hasn't done much to assuage its usual critics, and it didn't prevent its own intelligence bureaucracy from torpedoing that diplomacy with the December NIE (National Intelligence Estimate).

"What it has done is give Iran vital time to develop its nuclear knowhow and technical skill, perhaps to a point of no return. For President Bush, whose signature promise has been that he would not allow the world's most dangerous weapons to fall into the hands of the most dangerous regimes, this is not a record to be proud of."

Israel: Behind the scenes, Israeli and Palestinian leaders are attempting to broker a 30-day truce between the Israelis and Hamas, as Israel has further evidence Hamas terrorists have been training in Iran, while some in the government believe Hizbullah may have played a role in the seminary attack in Jerusalem.

But there is a heated debate within Israel over the issue of the settlements, with the government of Prime Minister Olmert having caved to the wishes of hardliners in approving the construction of hundreds of homes in a disputed West Bank district, with Palestinian leaders saying the move was another attempt to demolish the peace process. The 2003 'road map,' after all, called for the cessation of all settlement construction and Israelis are split on the issue.

Back to Iran and the nuclear issue, the Jerusalem Post editorialized:

""(Peace) cannot be pursued when every U.S.-aligned Arab state is already thinking ahead to a day when Iran has nuclear weapons and can undermine their regimes with impunity.

"This brings us to the problem of deterrence and containment, which have quietly become the consensus approach within the West's foreign and defense establishment with respect to Iran. While only rarely expressed in public, the common establishment view is that a nuclear Iran is not fundamentally different than a nuclear Soviet Union was, or a nuclear China and nuclear Pakistan are today - that is, a problem, but one that can be lived with.

"What this approach misses is that the Iran regime is different, and not just, or even mainly, because it glorifies martyrdom. The Iranian regime may indeed be the national equivalent of a suicide bomber, but even if it is not, and is susceptible to classic theories of deterrence, the Iranian problem is different.

"It is different because deterrence, at its best, can only prevent a nation from firing a nuclear-tipped missile. It might, but certainly cannot be guaranteed, to prevent a regime from deploying nuclear weapons through terrorist groups not identified with the source state. And it cannot, even in theory, prevent a regime from using its newfound nuclear immunity to greatly increase its support for 'conventional' terrorism to destabilize neighboring regimes, destroy a diplomatic process, create crises to pump up the price of oil, or spark a nuclear arms race.

"If there is an apt historical analogy to the Iranian situation, it is not the Cold War, but the period that Winston Churchill dubbed 'The Gathering Storm' before World War II, during which the Nazis were still weak but gaining power. This analogy holds because the Iranian regime will seek to expand totalitarian Islamism as far and as fast as it can until it is stopped.

"This is what our intelligence community should be saying on the analytic level and our political leaders should be saying on the international stage. Nor should we be shy about doing so, out of fear of transforming an international problem into an 'Israeli' issue.

"Israel needs to be at the forefront of explaining the international implications of a nuclear Iran. We have not done this urgently or clearly enough. Now we have the worst of both worlds - Iran is thought of as mainly a threat to Israel, but Israel does not seem especially alarmed, so, by this measure, there is no reason for other nations to be.

"While we are right to treat Iran as an international problem, there is no escaping our own role in puncturing the delusions that are lulling the West into collective inaction. Our message should be, and not just in private meetings between heads of state, that the U.S. and Europe together still can and still must prevent Iran from becoming the first nuclear-armed terrorist regime."

Iraq: The United States lost 12 soldiers over a three-day period in some of the worst violence in months, while Central Command leader Admiral William Fallon was forced to resign as a result of an ongoing policy dispute with the White House and Gen. David Petraeus over handling of both Iran and Iraq. For example, Fallon wanted to see an aggressive troop withdrawal schedule for Iraq, while issuing a few statements hinting that the administration was hellbent on war with Iran.

As for Petraeus, who testifies before Congress next month, he said "no one" in the U.S. and Iraqi governments "feels that there has been sufficient progress by any means in the area of national reconciliation," or in the provision of basic public services. [Cameron Barr / Washington Post] This despite the overall reduction in violence thanks to the surge. In February, after passage of three key laws, Petraeus was far more optimistic.

Afghanistan: Canada's parliament voted 198 to 77 to keep Canadian battalions in Kandahar for another three years, provided NATO sends 1,000 reinforcements, drones and helicopters to bolster Canada's force. Otherwise, it will withdraw next year.

I like the way our good friends up north are playing this. I would do the same. Along with the U.S. and the Brits, the Canadians are bearing the brunt of the heavy fighting (80 soldiers have died, plus a senior diplomat) and they deserve more support. Americans, particularly the Democratic presidential candidates, should also remember Canada's role in Afghanistan when they question issues such as NAFTA.

Lebanon: For a 16th time, a vote for president has been delayed as the crisis in government continues. The White House warned "that continued delay is unacceptable" as it urged outside forces, i.e. Syria, to butt out. Of course I find this rather humorous since it was the Bush administration that blew it back in 2005 by not appropriately supporting the democracy movement in those critical months after the assassination of Rafik Hariri. But then I've said countless times that Lebanon is going to be one of the big black marks on the Bush legacy. If you're looking for a shred of hope, though, maybe an Arab League summit set for March 29-30 will produce a semi-positive result; only one thing, it's being held in Damascus.

Pakistan: The widower of Benazir Bhutto, Ali Zardari, looks set to be tabbed prime minister this coming week when the new parliament convenes, as the coalition between Zardari's and Nawaz Sharif's parties have close to the two-thirds majority required to strip President Pervez Musharraf of his powers to dismiss parliament.

China: As I go to post, reports are sketchy on the level of rioting in Tibet, but the situation is very serious and there evidently have been fatalities. Earlier in the week, China had crushed protests by Buddhist monks there. The timing of the violence couldn't be worse and there will be a growing cry in some quarters to boycott the Olympic Games.

China is also dealing with a surge in domestic terrorism, which the situation in Tibet will only exacerbate. The government had to admit an incident on a China Southern airliner was an attempt to take down the aircraft as a woman was trying to assemble a petrol bomb in the restroom. The smell gave it away and the crew was able to take action before the terrorist succeeded. This came on top of an admission that the government acted to break up a terror ring in western China that was planning to disrupt the Games.

As for the issue of Taiwan, the island is holding its presidential election on March 22 and both candidates want closer ties with Beijing as the independence movement dies with outgoing President Chen Shui-bian. The new leader is expected to be Ma Ying-jeou of the Kuomintang. Separately, Chen's pet project, a referendum on whether Taiwanese want to apply for UN membership under the name Taiwan rather than the island's name, the Republic of China, will be defeated as the majority just doesn't want to rock the boat right now.

Chen issued a parting shot, "Some people may say the window of opportunity for Taiwan independence has already closed. But I agree even more with the view that the opportunity of Taiwan and the Chinese mainland merging, unifying, is becoming ever more remote."

Russia: President Vladimir Putin warned that relations between Russia and the West will not necessarily improve when Dmitry Medvedev takes over on May 7. "I do not think our partners will have it easier with Medvedev."

On the topic of NATO enlargement, Putin added, "You get the impression that attempts are being made to set up an organization that would substitute for the UN," warning that if that happened "the potential for conflict would only increase." [BBC News]

But on a lighter note, here is a popular joke going around in Moscow:

Putin takes Medvedev to a restaurant and orders a steak. "What about the vegetable?" the waiter asks. Putin looks at Medvedev and says, 'The vegetable will have steak, too." Ba-dum-dum.

Serbia: Prime Minister Kostunica is dissolving the government in preparation for early elections May 11 because his coalition can not agree on how to respond to Kosovo's declaration of independence and relations with the West and European Union. Leaders appear to be split down the middle. Meanwhile, Kosovo Serbs rioted on Friday in one of their two last strongholds.

Malaysia: Since independence in 1957, the United Malays National Organization (UMNO) has ruled with a strong majority but the party suffered a big defeat in elections last weekend as rural Muslims, angered by rising food and fuel costs and rampant corruption and cronyism rejected the Malay party and voted instead for a fundamentalist group, as well as Anwar Ibrahim's leading opposition party. This was seen as a political tsunami here and the stock market fell 9.5% on Monday over fears that badly needed infrastructure projects now won't be completed as Prime Minister Abdullah Badawi has lost his crucial 2/3s majority.

Spain: Socialist Prime Minister Zapatero won reelection and gained seats in parliament, though to get a working majority he is going to have to seek the support of parties that represent the Catalans (Barcelona) and Basques and the issue thus becomes, what kinds of concessions will they demand? I have to admit, I often forget just how split this country is.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $1002
Oil, $110.16

Returns for the week 3/10-3/14

Dow Jones +0.5% [11951]
S&P 500 -0.4% [1288]
S&P MidCap +0.0%
Russell 2000 +0.4%
Nasdaq unchanged [2212]

Returns for the period 1/1/08-3/14/08

Dow Jones -9.9%
S&P 500 -12.3%
S&P MidCap -11.3%
Russell 2000 -13.5%
Nasdaq -16.6%

Bulls 31.1
Bears 43.3 [Source: Chartcraft / Investors Intelligence]*

*These bull/bear figures represent the biggest extremes since Oct. 2002, right at the market bottom. Back then, the bull reading then shot up to 50.6 in just four weeks, while the bears fell to 28.1 as stocks rallied strongly. Remember, it's a contrarian indicator and just one of many used by investors and traders alike.

Happy St. Patrick's Day!

May the road rise to meet you.
May the wind be always at your back.
May the sun shine warm upon your face,
the rain fall soft upon your fields and,
until we meet again,
may God hold you in the palm of His hand.

Brian Trumbore

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