Educate Yourself

Week in Review
For the week 3/24/2008 - 3/28/2008
Brian Trumbore
President/Editor, StocksandNews.com

"There is a strong need for urgent action," said former Treasury Secretary Robert Rubin. "I would be very, very seriously considering the possibility of using public funds in one form or another." In an interview with Bloomberg News, Rubin added "The Fed has done a very good job. The Treasury, working with the Fed, did the right thing conceptually in rescuing Bear Stearns." But, "The credit markets themselves are really in uncharted waters."

Of course the discussion has become very political in an election year and, agree or disagree, Hillary Clinton does have a good line when she says "If we can extend a $30 billion lifeline to avoid a crisis for Wall Street banks, we should extend at least $30 billion in immediate assistance to at-risk communities and families facing foreclosure."

Liberal economist Jared Bernstein adds, "Some say, let market discipline rule. But some banks are too big to fail, and some homeowners don't deserve to lose their shirts."

But even if you wanted to develop a bailout program, how do you ensure the aid only goes to those who are deserving, and how do you avoid a backlash from those who rightfully believe they played by the rules, thus, why should they have to pay for those who in most cases probably exercised poor judgment?

In his story for the Los Angeles Times, reporter Michael A. Hiltzik quotes a Palo Alto software executive who offers, "If businesses don't want to modify their own loans, then letting the government do it just means the government is taking on the risks that the lenders don't want?.Not letting people (suffer) the consequences of their actions just means that there won't be a lesson for them, and 10 years from now we'll be doing this again."

But PIMCO's Bill Gross has long called for government intervention. "If Washington gets off its high 'moral hazard' horse and moves to support housing prices, investors will return in a rush to prudent government- and agency backed securities," thus helping unclog the pipes that have led to the credit crisis.

Personally, I'm just frustrated because some of us were crying out for years during the bubble, though my take is a little different than the rest in that I directly blame regulators and, yes, the White House.

Us Republicans (of which I am going to be one in name only just another few weeks, until I can find the time to change my registration to 'independent') like to joke that the other side always "blames Bush for all our ills."

But let me tell you, friends, while a president has no business discussing what to do in the stock market during a press conference, for instance, when it comes to the average American's number one asset, his home, or the most important financial decision an American may have to make, the decision to purchase one, a president is in his right to warn his flock about making prudent decisions and not overreaching.

I don't expect more than two percent of you to agree with this last point, but I also believe that even just last fall, when the president and the treasury department began the 'Hope Now Alliance' initiative, they should have been pounding away through public service announcements to have homeowners call their banks and mortgage lenders to try and work out better terms. Yes, I know in many cases you don't have a clue who actually holds your mortgage these days, but the president and treasury didn't even take that simple step. If you didn't watch CNBC all day (and, thankfully, 99 percent of you don't because you have real jobs), you'd never see our leaders making these pleas at all.

[Ironically, at 3:30 pm on Friday, President Bush was doing just this, though in flipping around to see who was covering it, CNBC did for a minute and that was it. How about a freakin' prime time address that would have taken five minutes last fall, Mr. President? Alas, now as I go to post, it appears the administration is preparing some sort of rescue plan?details to follow?.though it's certain the backlash will be swift and severe.]

As for the latest actual data, the S&P/Case-Shiller home price index of 20 U.S. metropolitan areas dropped 10.7 percent in January from a year earlier and has now declined 13 consecutive months. This seems, on the surface, to be as accurate a reading as we have and of the 20 cities measured, only one showed a price increase, Charlotte. Yet what have I been writing of the past few weeks? Massive foreclosures in Charlotte. Draw your own conclusions. I've drawn mine.

Two leading homebuilders reported earnings this week, Lennar and KB Home, and revenues were down 40 to 60 percent over a year ago. The CEO's of both said the same thing; still too much inventory and until it's largely worked off you'll have no bottom. It doesn't help that consumer confidence is at rock bottom levels as well.

Separately, existing- and new-home sales for February both exceeded meager expectations, but if you're looking for a silver lining, don't bother. Go pet the dog instead if you want to feel better.

Commercial real estate is obviously the next shoe to drop. Goldman Sachs is projecting serious losses in $460 billion in loans outstanding in this category, as the tightening in credit conditions forces lending institutions to pull back to preserve their already reduced capital; though if you follow Oppenheimer banking analyst Meredith Whitney, and her latest projections of further massive writedowns by the likes of Citigroup, UBS and Merrill Lynch, just where the investment banks are going to find another round of capital infusions to repair their already tattered balance sheets is anyone's guess. The sovereign wealth funds, after all, can't conceivably be stupid enough to keep throwing good money after bad. They have been killed thus far?let alone private investor Joe Lewis and his Bear Stearns debacle.

Sorry to be so surly. I actually had a better week, myself, but then I haven't received my new property tax notice yet. Here in Summit, the headquarters for StocksandNews, I see homeowners are getting hit with an increase of 7.3% on a depreciating asset. Now isn't that special. No wonder the motorists here try and run you down when you're in a crosswalk. Next time I'm flattened, I guess I'll be more understanding.

Well, we're basically at quarter end and I said I'd update you on my own forecast, which hasn't changed in 15 months. While the final word on fourth quarter GDP for 2007 came in at an unrevised up 0.6%, I do maintain we are currently in recession, though like many of you I eagerly await the end of April and the first official gauge of GDP for Q1. I'm looking at taking some tap-dancing lessons just in case.

For now, however, I'm sticking with my forecast of a "fairly shallow" downturn. And how do I define that? Minimally negative GDP figures, but it will feel worse.

That said, the housing sector will not recover in earnest for years. We have entered a long period of well below normal economic activity, thanks to our number one asset losing its value and the impact that is increasingly having on consumer spending. Plus, the slowdown is global, thanks again to my worldwide housing bubble, and we're just going to walk around feeling blah. "60 Minutes" will be doing segments on how we're tired of looking at each other and many of you will get sick of reading this column because you'll use the excuse it drags you down further.

There now?how's that for a forecast? But guess what? The above doesn't mean stocks are going to take a big drubbing from here. In fact I'm sticking with my original 2008 forecast of 3 to 5 percent declines in the major averages, meaning from current levels we could see a little more upside from the January lows. Where many are going to get things wrong, though, is in thinking the economy is close to a bottom, say in the second quarter, and that stocks should be ready to start a new bull run to new highs. Sorry, we'll be faked out, time and time again, like in housing.

In a nutshell, I'm not changing my tune one iota. But I do have to bring up three other items. A wildcard, the election, and inflation.

My prime wildcard is Iran. I remain convinced some action will be taken, most likely by Israel by year end because clearly Iran is not going to be forced to cease with its uranium enrichment operation. I do not see how Israel can wait until next year, let alone 2010 when most "experts" seem to think Tehran would have enough material for a bomb or two.

But I'm not so sure anyone can say just how the markets would react should a preemptive strike on suspected nuclear facilities be carried out. I've written a lot on my "hot spots" link of disaster scenarios, including a wave of terrorism, and obviously you'd expect oil to spike $50 overnight, thus deepening the economic downturn around the globe, but I'm not so sure how long the dire news would last. I'm not sure a strike on Iran automatically means Hizbullah and Hamas launch massive assaults of their own on Israel and U.S. and Western interests. It seems like too easy of a theory.

What if, instead, the Iranian people, led by the moderates, rise up, overthrow their government for putting them in such a perilous situation, and immediately start cutting deals with the West to ensure their survival, which would of course include cutting off funding to the terrorists? While I'm involved in studying such material on a daily basis, I need a little more time to fully think this through, thus I reserve the right to amend the above over the next few weeks.

As for the coming presidential election, this is depressing. All three candidates are bumming me out, including John McCain because I have zero confidence he will perform well in the debates. I love the man, and as you see when you Google my name (scary what's up there, by the way, including the detail), a vast majority of his supporters just wish he was 8 years younger. I truly am amazed, for example, at how little grasp of economic matters he really has. [Maybe Mitt Romney as Veep is the answer to this conundrum after all.] In the end, I just feel Americans, and investors, won't like the prospects for the next term when they go to the polls.

Lastly, on a milder topic, inflation, I know the numbers don't look good today. I grocery shop just like the rest of you and I'm sick of shelling out $40+ to fill the gas tank. Merrill Lynch did a study that shows 36% of disposable income is going towards food, energy and healthcare these days, the highest since this data began being tracked in 1960, and, adjusted for inflation, median family income in America has declined 2.6% since 2000 thanks to rising healthcare costs, a fact Republicans are always loath to admit.

But I just believe inflation will come down with the slowing global economy, though as I note below, on the food front we have to face some serious crises the next few quarters in the developing world in particular before this occurs.

--Stocks finished mixed, with the Dow Jones losing 1.2% to 12216 and the S&P 500 declining 1.1% to 1315. But Nasdaq managed to eke out a three-point gain despite some less than exciting earnings out of Oracle. What hurt on Friday was J.C. Penny's earnings warning that in turn dragged down all the retailers.

Action in the Treasury pits was mixed, a la equities. The news on the economy certainly wasn't good, as durable goods orders (big ticket items) for February were down a whopping 1.7%, far worse than expected, while personal consumption, up 0.1%, continued to confirm the consumer was retrenching.

--I was kicking myself when I saw the front page headline in the Wall Street Journal, "Stocks Tarnished by 'Lost Decade'". Dr. Whit W., a fraternity brother from Wake Forest and a loyal reader, alerted me to this fact a month ago and, Whit, last weekend I was doing some work on the topic for this week's review. Alas, I was too late. So I'm 'buying' next time we see each other, Doctor.

The Journal's E. S. Browning pointed out that the S&P 500 was trading at 1362 in April 1999, and here we sit today at lower levels, plus when you factor in dividends and the impact of inflation, the S&P has risen just 1.3% a year over the past ten years.

Dow Jones?11497??..today, 12216
S&P 500??.1469??..today, 1315
Nasdaq???4069??..today, 2261

Actually, the average price of oil for all of 1998 was $13.34 and $18 in '99. No one was complaining about prices at the pump then.

But Dr. Whit was noting how he thought our markets were heading towards Japan redux and a decade-long slump (like that country went through in the 90s). Well, I just so happen to have market data going back to 1990, so, let's look at some international barometers.

Tokyo Nikkei?18934?..today, 12820?another lost decade
London FT-SE?6930?..today, 5692
Frankfurt DAX?6958?.today, 6559
Toronto Comp. ?8413*?today, 13233

Unless you were invested in commodities, and some emerging markets, it's been a lost decade all around.

--Growth in the U.K. for the fourth quarter came in at exactly the same figure as in the U.S., up 0.6%. We truly are related. But remember, the real estate bubble across the pond is worse than it was here, particularly when it comes to mortgage reset rates, which are about to slam the Brits.

--Oracle Corp.'s earnings were far from awful, just below expectations so the shares got slammed after running up ahead of the news. Sales of new software, for example, rose 16%, but this wasn't good enough, and then the company said on its conference call that some customers grew "cautious" at quarter end, which for those of us who believe we're in recession is the key.

--It's incredible to think that it was just about nine months ago that all we were talking about was the exploding private-equity business and, today, it's about the inability of Clear Channel Communications and its private-equity buyers to complete the financing as banks like Citigroup, Credit Suisse and Deutsche Bank renege on their agreements to provide the funds. In this instance, Clear Channel and private-equity firms Thomas H. Lee Partners and Bain Capital Partners have been forced to take the banks to court to compel them to complete the leveraged buyout.

Coincidentally, 25 of the 42 companies that Standard & Poor's says have the lowest credit ratings, and thus the highest risk of default, are owned or controlled by private-equity firms. This was all so predictable.

--JPMorgan sweetened its bid for Bear Stearns to $10 from $2 in another hasty move to not only save the deal, but wrap it up in light speed by April 8. In turn JPM is assuming responsibility for the first $1 billion associated with a $30 billion portfolio of impossible-to-price assets, which will now be managed by BlackRock; selected by the Federal Reserve in what is one helluva coup for Larry Fink and Co. [Nice time to be on the marketing team there? "The Fed did its due diligence and selected us. What else do you need to know?"]

Meanwhile, SEC chairman Christopher Cox said in a letter to Swiss regulators that the "fate of Bear Stearns was a lack of confidence, not a lack of capital." As for Bear chairman Jimmy Cayne, who has been accompanied by an armed guard since the collapse of the firm, he sold his entire remaining stake for $61 million. A year ago it was worth $1 billion; not that we are crying for the man.

--In a page one story in the Journal titled "Woes in Condo Market Build As New Supply Floods Cities," there is a mention of San Diego, which "will add 2,500 units" over the next year or so. Reader Josh P. was all over this a long time ago, as I've then relayed on to you. And it was in the fall of 2006 that I was cruising around the Tucson, Arizona, area and told you of the glut I saw, which also proved to be the case as Phoenix-Tucson are as much ground zero as Florida and Las Vegas when it comes to this sector. Condos, nationwide, have the same inventory levels as single-family homes, 10 months.

And then you have the issue of construction loans. I keep writing of this 75-unit or so development down the street from me and I still haven't seen a 'sold' sign on a single unit, but imagine the loan this particular builder is on the hook for. You all know the developers' game?.sell some units, get the cash flow, and build some more. Pretty tough to keep playing if there's no cash coming in, let alone in many cases those who put deposits down, especially in the prime bubble regions, are continuing to just walk away.

--In order to survive, maybe, Thornburg Mortgage, the "jumbo" mortgage specialist that liked to say "we have no subprime," while accepting Alt-A and no-doc loans in some cases, was forced to sell up to $1.4 billion in senior notes with an initial coupon of 18%. It remains to be seen if this stop-gap measure will work.

--Jesse Eisinger had the following thoughts in Conde Nast Portfolio (great magazine, by the way) on corporate responsibility.

"When Bob Nardelli said in September 2006 that he took 'full responsibility' for manhandling Home Depot, how was he to know that he'd be kicked out four months later with an extra $210 million in the bank? Or that he'd end up at the wheel of an American icon, Chrysler? Merrill Lynch's Stan O'Neal, who also mouthed the responsibility platitude, received $160 million when he was dumped after billions of dollars of bets went bad and word leaked out that he had toyed with selling the company without talking to his board.

"Other disgraced Wall Street executives are hot commodities in the job market, valued for their perceived ability to walk through fire and survive. Private equity firms are turning away from deals signed mere months before. J.C. Flowers & Co. even managed to leave Sallie Mae at the altar and not pay the contractually negotiated breakup fee. Housing-industry shills who championed a rising market are keeping their jobs. Banks that made disastrous loans are cutting in line to borrow at below- market rates from the Federal Reserve. 'It's amazing, the lack of shame,' says Lawrence Mitchell, a George Washington University professor and author of 'The Speculation Economy: How Finance Triumphed Over Industry.' 'The guys on Wall Street claim they believe in free markets and are entitled to enormous compensation because of their risk taking. But when they lose, do they say to themselves, 'I'm going to take my losses'? No, they go running to Uncle Ben' - Ben Bernanke - 'and he, in a grotesquely irresponsible move, bails them out.'"

--Interesting viewpoint from columnist Matthew Parris in the London Times on the overall mood both in Britain and around the world.

"There's no great debate about the world's or Britain's economic prospects because what is there to say except 'fingers crossed'? Over the Thames the metallic clutter of huge cranes above the isle of Dogs stays rigidly in place, steel arms swinging slowly across the sky, building new skyscrapers: offices and homes for office workers; and they are extending all the platforms of the Docklands Light Railway so the trains can take an extra car because the growing pressure of commuter numbers threatens to overwhelm the service?.

"Who knows what's happening? Perhaps nothing, after all. Perhaps this will all blow over. But what unsettles me goes deeper than a sense of mystery about the future. At most junctures in history there arises the feeling of a lull before a possible storm. Heck we were in a worse state in 1945, or 1979 [Ed. the crisis Britain faced at the dawning of the Thatcher Era]. Danger was more imminent in the Cuban missile crisis in 1962. The fall of the Berlin Wall in 1989 posited bigger unknowns for the future. But at these crossroads the air was full of ideas: strong ideas, competing ideas, confident philosophies, angry dissent. People had policies. Ideologies clashed. Politicians and thinkers jostled to present their plans. Leaders led.

"But what distinguishes this hiatus in 2008 from those earlier forks in the road is the impassivity of our politics, and the idleness of political debate, as we wait. There is a sense of vacuum."

Like I've been saying for years, there are no Churchills to call on these days, that's for sure.

--And a Churchill is what we need now when it comes to entitlement spending, as yet another government report warned this week of the coming crisis, first and foremost in Medicare. Just don't ask today's presidential candidates to talk about painful solutions.

--Prosecutors in California arrested 19 people involved in a scam where homeowners were told they could avoid foreclosure by signing over their home's title, in essence, to the fraud ring who then took out a new mortgage to take out the equity.

Someone explain to me why any individual involved in such a premeditated fraud should not receive life in prison without parole? Time's up.

--Google received more bad news in the form of February data from research group comScore Inc. that shows for the second consecutive month, Google's paid-click data fell 3% from January, though this doesn't reflect what advertisers are actually paying per click. I just believe the bottom line is Google isn't immune to a slowing economy and reduced spending on advertising. [Plus I have my own ongoing issues with click fraud.]

--I saw this story on the wire, one that has political overtones. Pennsylvania's largest grower of fresh-to-market tomatoes, Fred W. Eckel & Sons Farms Inc., said it was no longer producing the crop because the fourth-generation farmer/owner, Keith Eckel, can't find enough workers to harvest it.

"There are a number of workers hesitant to travel, legal or illegal, because of the scrutiny they are now under. So there are less workers crossing state lines."

--I have been waiting impatiently for my conservationsalmon.com food source to start offering salmon again, but now I'm beginning to wonder if they and others will be able to procure the 'wild' variety after the latest data on the Pacific stock. In Oregon and Washington, for example, the population has plummeted from 1.5 million in 2005 to an estimated 35,000 today. Man is the culprit (such as in polluting the waterways) but not because of global warming.

--I spent some time in New York on Tuesday and took a long walk through Central Park for the first time in what was probably decades. Funny how you forget some of life's simple pleasures. I remain floored each time I'm in the Big Apple at the number of tourists, thanks to the sagging dollar. I stayed overnight at a hotel on W. 50th and I was the only American there, or so it seemed. The smallest room I've ever had and it was $500, but with the currency being what it is, still a relative bargain for foreigners.

--Did you see the new drink hitting the market? "Gatorade Tiger." Oh, to be Tiger Woods. But then no one in the world works harder at their craft than he does. Thus, no one is more deserving of the rewards.

--Why does the Wall Street Journal insist on spelling JPMorgan Chase as J.P. Morgan, even though the company's own Web site clearly tells you it's the former? I have to admit I've been confused myself and written it out every which way imaginable on these pages, so I apologize for that.

--My portfolio: Much better week thanks to a recovery in my solar play. But I'm still reduced to drinking domestic over premium owing to the damage done the prior two weeks.

--We note the passing of Egg McMuffin founder Herb Peterson, 89. Peterson came up with the idea in 1972, and once upon a time wrote the fast-food king's first national advertising slogan, "Where Quality Starts Fresh Every Day." [I might co-opt this one.]

Peterson, it seems, was partial to eggs benedict (who isn't) so he came up with a sandwich that consisted of an egg with the yolk broken, topped with a slice of cheese and grilled Canadian bacon. At first it was served open-faced on a toasted English muffin, but that was messy when you picked it up so they added the top half.

--And the great ad man Hal Riney died, 75. Among his triumphs was the slogan for Saturn being a "different kind of company," the campaign for Frank Bartles and Ed Jaymes and Gallo wine coolers, as well as Ronald Reagan's "It's Morning in America," all three of which were named in Advertising Age's top 100 campaigns of the 20th century.

I liked what Riney once said with regards to his ego. That wasn't his driver, but rather "the fear that I'm really no damned good." [Bruce Horovitz / USA Today]

China: Lots of issues, but let's start with Taiwan and its presidential election last weekend where the Kuomintang's Ma Ying-jeou defeated his DPP rival, Frank Hsieh, 58-42, with a strong 76% turnout. The result was viewed positively by all sides, including China, as Ma has long sought peaceful relations with the mainland. As one analyst told the Financial Times, "The KMT and the Chinese leadership have a common objective: economic development on both sides of the Taiwan Strait and the easing of tension."

Ma wants to focus on the economic issues first and then eventually on a peace accord. China's leaders have long maintained they will communicate with Taiwan's leadership as long as the latter isn't pursuing independence, as current president Chen Shui-bian basically has.

Taiwan's economy, while exhibiting decent overall growth because of a still thriving electronics-driven export sector, is nonetheless stagnating as manufacturing jobs have moved to China and Taiwan's business leaders have watched it lose out to the likes of Hong Kong, South Korea and Singapore.

But back to the politics of it all, there is no talk of unification with the emergence of president-elect Ma. Today, only a small minority of the people desire this.

[By the way, two referendums calling for Taiwan to apply for membership in the United Nations fell short of passage, as a majority didn't vote on the referendum at all, thus making it invalid, while the fact there were no mass protests following the election was a clear sign of Taiwan's maturing democracy.]

Moving across to the mainland, it was all about the Olympics and the ongoing international uproar over the situation in Tibet.

The torch lighting ceremony in Greece on Monday proved to be a supreme embarrassment for Beijing as somehow protesters were able to elude security and unfurl a black banner with five interlocked handcuffs in the pattern of the Olympic rings. A Chinese foreign ministry spokesman called the act "disgraceful," and there are real concerns the torch relay could see some violence, particularly since China insists on winding it through Tibet and the restive western provinces.

Many European leaders, including the president of the European Parliament, are calling for a boycott of the Olympics, at least of the opening ceremonies. President Nicolas Sarkozy himself has hinted he'll take this route.

Personally, I am not in favor of a boycott because I think the last thing we want to do with China today is poke them in the eye, though I note the following opinions on the topic, beginning with Anne Applebaum of the Washington Post.

"Some boycotts do help solve some things. The boycott of South Africa by international competitions was probably the single most effective weapon the international community ever deployed against the apartheid state?.The boycott of the 1980 Moscow Olympics helped undermine Soviet propaganda about the invasion of Afghanistan and helped unify the Western world against it. I don't know for certain, but I'm guessing that from the Soviet perspective, the Soviet boycott of the Los Angeles Olympics four years later was successful, too. Presumably, it was intended to solidify opposition among the Soviet elite toward the United States in the Reagan years, and presumably it helped?.

" 'The Olympic Games are not the place for demonstrations.' Aren't they? Actually, the Olympics seem an ideal place for demonstrations. Not only are the world's media there with cameras running, but the modern Olympics were set up with a political purpose: to promote international peace by encouraging healthy competition among nations?.

"Everything associated with the 2008 Olympics, from the massive Beijing building program, to the Olympic torch that is due to be carried across Tibet, to the Chinese Olympic committee's Web site (which describes China's commitment to 'promoting mass sporting activities on an extensive scale, improving the people's physique, and spurring the socialist modernization of China') is blatantly designed to promote the domestic and international image of the Chinese state, too.

"No wonder then, that everyone who hates or fears China, whether in Burma, Darfur, Tibet or Beijing, is calling for a boycott. And the Chinese government and the International Olympic Committee are terrified that those appeals will succeed. No one involved in the preparations for this year's Olympics really believes that this is 'only about the athletes,' or that the Beijing Games will be an innocent display of sporting prowess, or that they bear no relation to Chinese politics. I don't see why the rest of us should believe those things, either."

"Adolf Hitler's glee at exploiting the 1936 Berlin Olympics as a showcase for Nazism turned to fury when the black American athlete Jesse Owens won four gold medals. The Chinese leadership must by now be wondering whether staging the Games in Beijing will bring the regime more accolades than brickbats. Be careful what you wish for, as Confucius probably said.

"In defense of the Olympic movement, Berlin had been selected before the Nazis came to power. No such excuse covers the decision to award the coveted prize to Beijing. In 1989 the Chinese government crushed the peaceful protests in Tiananmen Square as the world looked on in horror. China still secured the Olympics and a propaganda triumph and has looked forward to showing off to the world?.

"All the indicators suggested that China would be given a soft ride?.As Washington became embroiled in (its wars and scandals such as Abu Ghraib)...Premier Wen Jiabao, the prime minister, must have been confident that America would avoid dialogue on human rights?.

"China's economic sway is such that is has undermined U.S. foreign policy with impunity. America aims to use its muscle to shape a world that embraces western values. In developing countries it insists that governments respect the rule of law and reduce corruption as a condition for trade and aid. China, on the other hand, has extended the hand of friendship to gruesome regimes (including Sudan's)?.

"So China had every reason to expect a trouble-free Olympics that would show its best face to the world?.

"China failed to understand that politicians in democracies cannot predict what positions they will take?.In a few weeks they have moved from avoiding anything that might offend Beijing to scrambling to be seen as pro-Tibetan. It scarcely matters whether the riots in Lhasa were, at least in part, brutal and racist, nor that such violence is in defiance of the Dalai Lama's strictures and undermines his authority. The Tibet bandwagon is rolling and every democratic politician clamors for a place on board?.

"When China bid for the Olympics it judged correctly that democratic politicians are pusillanimous. Given their hunger for Chinese contracts they would not let massacre in Darfur or torture in Tibet disrupt a good party. But Beijing failed to see that western statesmen are even more craven towards their celebrities and media. Beijing's other mistake was being too anxious for the Games to be a success. A man who wants something too much makes himself vulnerable. Surely Confucius said something of the sort."

"China can go for great stretches these days looking like the model of a postmodern, 21st-century power?.

"But occasionally the mask slips, and the other side of China is revealed. For China is also a 19th-century power, filled with nationalist pride, ambitions and resentments; consumed with questions of territorial sovereignty; hanging on repressively to old conquered lands in its interior; and threatening war against a small island country off its coast.

"It is also an authoritarian dictatorship, albeit of a modern variety. The nature of its rule isn't visible on the streets of Shanghai, where people enjoy a degree of personal freedom as long as they keep their noses out of politics. It is only when someone challenges its authority that the brute power on which the regime ultimately rests shows itself?.

"These days, China watchers talk about it becoming a 'responsible stakeholder' in the international system. But perhaps we should not expect too much. The interests of the world's autocracies are not the same as those of the democracies. We want to make the world safe for democracy. They want to make the world safe, if not for all autocracies at least for their own. People talk about how pragmatic Chinese rulers are, but like all autocrats what they are most pragmatic about is keeping themselves in power. We may want to keep that in mind as we try to bring them into our liberal international order."

On the issue of Tibet, Patrick French, an authority on the topic, had an op-ed in the New York Times.

"The Dalai Lama is a great and charismatic spiritual figure, but a poor and poorly advised political strategist."

After all, he's been in exile since 1959 and what improvements have there been for his people?

"It has been clear since the mid-1990s that the popular internationalization of the Tibet issue has had no positive effect on the Beijing government. The leadership is not amenable to 'moral pressure,' over the Olympics or anything else, particularly by the nations that invaded Iraq?.

"When Beijing attacks the 'Dalai clique,' it is referring to the various groups that make Chinese leaders lose face each time they visit a Western country. The International Campaign for Tibet, based in Washington, is now a more powerful and effective force on global opinion than the Dalai Lama's outfit in northern India?.

"These groups hate criticism almost as much as the Chinese government does. Some use questionable information. For example, the Free Tibet Campaign in London (of which I am a former director) and other groups have long claimed that 1.2 million Tibetans have been killed by the Chinese since they invaded in 1950. However, after scouring the archives in Dharamsala while researching my book on Tibet, I found that there was no evidence to support that figure. The question that Nancy Pelosi and celebrity advocates like Richard Gere ought to answer is this: Have the actions of the Western pro-Tibet lobby over the last 20 years brought a single benefit to the Tibetans who live inside Tibet, and if not, why continue with a failed strategy?....

"Tibet was effectively a sovereign nation at the time of the Communist invasion and was in full control of its own affairs. But the battle for Tibetan independence was lost 49 years ago when the Dalai Lama escaped into exile. His goal, and that of those who want to help the Tibetan people, should be to negotiate realistically with the Chinese state. The present protests, supported from overseas, will bring only more suffering. China is not a democracy, and it will not budge."

I have to note that last week I received a very thoughtful note from Jim W., a native of China now living in Minneapolis. I agree with Mr. French's conclusion above, as I imagine does Mr. W., who just asks everyone to keep an open mind.

North Korea: Pyongyang test-fired a few bottle rockets, probably in response to a tit-for-tat with Seoul this week, as South Korea's conservative new President Lee blasted the North for its human rights record. The North then expelled South Korean managers from a joint economic zone in North Korea at Kaesong.

Meanwhile, Pyongyang is also playing the role of bully and jerk as it continues to ignore its obligation to fully declare its nuclear weapons program, which is now three months overdue, as the U.S. correctly insists there will be no further aid unless the North comes clean on just what it was doing in Syria, for starters.

Iraq: Shia militia leader Moqtada al-Sadr ordered a general strike over the government crackdown on his Mahdi Army militia as violence then spread in both Baghdad's Sadr City and in Basra, recently turned over to Iraqi security forces following the withdrawal by the British who were responsible for the key sector where much of Iraq's oil infrastructure is.

The sudden outbreak of intense fighting that has claimed over 100 lives in Basra alone certainly hinders any troop withdrawal plans the White House may have had as General David Petraeus prepares to update Congress on the war effort, and it also provides the first real test of the Iraqi Army. Thus far, what's clear is that the army would have failed had the U.S. and Britain not continued to provide key support on both the ground and the air.

There has also been a worrisome pick up in attacks on the Green Zone, as Petraeus accused Iran's Quds force of training militias on mortar warfare.

Despite the widespread attacks, President Bush maintained in a speech, "[As] I consider the way forward, I will always remember that the progress in Iraq is real, it's substantive, but it is reversible. And so the principle behind my decision on our troop levels will be ensuring that we succeed in Iraq."

Then he reiterated his claim on Iraq's importance when looking at the big picture. "If America's strategic interests are not in Iraq - the convergence point for the twin threats of al Qaeda and Iran?the country at the heart of the most volatile region on Earth - then where are they?"

Yet when it comes to the Iraqi leaders, by Friday, Prime Minister Nouri al-Maliki, personally overseeing the operation in Basra, appeared to be waffling as he gave Sadr's Mahdi Army more time to put down its arms.

But this was a week that saw the death toll officially hit 4,000. Retired Lt. Col. Ralph Peters commented in the New York Post.

"Soldiers die in war. They always will. They know that when they sign up or re-enlist. Nonetheless, our nation's leaders have the responsibility to employ our troops as wisely as possible and never to squander their lives for political ends.

"As we reached the 4,000th service-member killed in action, I found myself disgusted with both the Bush administration and its irresponsible, cynical opponents. The slogan, 'Support Our Troops, Bring Them Home,' may be the most dishonest that ever intruded on American politics - but the war's original sponsors haven't rushed their own kids to the recruiting office, either.

"With all-too-rare exceptions, our politicians, right or left, really don't give a damn about our troops. Polls matter, grunts don't.

"Oh, the pols spout all sorts of rhetoric about how much they honor those in uniform, but they really only value our troops as tools of partisan policies or for photo ops.

"Between the incumbent president and his would-be replacements, only one has served in uniform or had a son or daughter serve in uniform. If military service is so praiseworthy, why don't more pols encourage their own kids to sign up? I'll tell you why: They regard our troops as second-raters who couldn't get into Harvard Law or a master's program at Yale?.

"Most pols don't even know any service members - except for a few grotesquely ambitious retired generals and admirals.

"We've seen President Bush dressed up in a flight suit, grinning like Alfred E. Neuman among troops who desperately want to believe in their commander-in-chief. We've seen Sen. Hillary Clinton do drive-bys in Iraq - just long enough to make political statements, pose with the troops, then zip home.

"For his part, Sen. Obama at least has the integrity to not even pretend he cares about the troops - he doesn't go anyplace more dangerous than a Chicago church pew. No recent aspirant for the Oval Office has known or cared so little about our military.

"I'm just damned angry. The right won't admit any mistakes in Iraq, while the left seeks to undercut progress there.

"Honorable, valiant and tenacious, our troops deserve better leaders. Never in our history have we seen so profound a contrast between those who serve and those who decide how they should be employed.

"We also face, for the first time, national-level leaders who would rather lose a war than lose an election.

"From President Bush, a straightforward, no-excuses apology for his administration's arrogance and earlier mistakes in this war.

"From Sen. Clinton, a public denunciation of her Hollywood pals (who keep funding movies portraying our soldiers as atrocity- addicted psychotics) and a commitment to listen to our leading generals before making any decisions regarding troop withdrawals.

"From. Sen. Obama, a two-week visit to dirty-boots Army and Marine units in Iraq (not the Green Zone and no photo ops) and a pledge to give a fair hearing to military advice before surrendering to al Qaeda in Iraq.

"From both parties in Congress, a return to the policy that, in wartime, politics stops at the water's edge."

Israel: Defense officials say Hizbullah has new rockets with a range of 300 km, or four times the range of those used in the 2006 war, which also means that all of Israel's population centers, as well as the Dimona nuclear reactor, are in range.

"America's commitment to Israel's security is enduring and unshakeable, as is our commitment to Israel's right to defend itself - always - against terrorism, rocket attacks and other threats from forces dedicated to Israel's destruction. The United States will never pressure Israel to take steps to threaten its security."

But then he said the U.S. wants to resolve the Palestinian conflict, but you can't begin to dream of this unless the U.S. is perceived as an honest broker and as long as we say one thing and do another with regards to the settlements, we're wasting our time.

Separately, Israel is preparing its military for a full-blown assault on the Gaza Strip should diplomacy fail to halt the rocket attacks. According to Defense News, Israel is training for high-intensity warfare as Hamas deploys an active-duty force of some 20,000, professionally organized into five brigades, each with its own command-and-control network, crack sniper units, intel officers and logistics support systems.

Arab Summit: Leaders from Saudi Arabia, Egypt and Lebanon are boycotting the Damascus summit, Sat.-Sun., over Syria's role in keeping Lebanon from electing a president since November.

Pakistan: The White House is very concerned that the new leadership here led by Ali Zarderi and Nawaz Sharif, will willingly cede control over the tribal areas in return for peace in the rest of the country, so as President Musharraf is increasingly isolated, there are reports the U.S. is stepping up its Predator aircraft attacks on suspected al Qaeda and Taliban targets ahead of a formal change in policy.

Afghanistan: French President Nicolas Sarkozy has committed to send an additional 1,000 troops, which in turn should ensure Canada remains engaged; this being a condition for Canada's continued involvement.

Victoria Nuland, the U.S. Ambassador to NATO, had some interesting thoughts on the issues facing the alliance in an interview with the London Times.

"One of the problems is that European defense budgets are going down. When you look at the alliance, you don't see 30,000 troops sitting in a parking lot with nothing to do and waiting to be sent somewhere. Everyone is stretched. There are some countries that could do more but one of the reasons why alliance members are not chipping in with troops and equipment for Afghanistan is that they haven't hardened their helicopters to be able to fight in the desert and they haven't had counter- insurgency training in the desert?.

"After the Cold War ended, everyone thought we would be able to focus on soft security, but now we find we have to do hard security. The UK has one of the best militaries in the world and is good at recruiting but the entire alliance structure has shrunk. NATO is stretched to find 60,000 troops to deploy. In Afghanistan, we're now in a hump period between fighting the Taliban and training the Afghans. In three or four years' time we hope that we'll be doing more on training and less on fighting. But during this hump period it's hard for the alliance that had never fired a shot in anger before in a ground war. In Kosovo it was an air war; now in Afghanistan it's a full-scale counter- insurgency war."

Russia: Parliament voted 444-0 in a non-binding resolution in support of independence for Georgia's two disputed territories, Abkhazia and South Ossetia, especially if Georgia and Ukraine are fast-tracked for NATO membership.

Speaking of which, next week's annual NATO summit promises to be interesting. Secretary-general Jaap de Hoop Scheffer warned Vladimir Putin to tone down the rhetoric as Putin attends for the first time.

For his part, President Bush, who is pushing for Georgia's and Ukraine's membership, suddenly decided to hold a summit with Putin following the NATO confab in the hope of repairing relations before Putin steps down May 7, particularly on the issue of missile defense.

As for presidential candidate John McCain, he has consistently maintained that Russia should be excluded from the Group of Eight, reiterating this week that the G-8 should once again become "a club of leading market democracies: It should include Brazil and India but exclude Russia." I totally agree with the senator.

And in case you had any doubts about the Kremlin's intentions these days, look no further than the treatment of TNK-BP, the joint energy venture including British Petroleum. All foreign employees were suspended because of newly risen visa problems, this after a Russian-U.S. employee was arrested by the Federal Security Service (formerly, the KGB) on trumped up charges of industrial espionage (my opinion). Kremlin infighting is leading to a fight between those favoring state-run Rosneft and Gazprom over TNK-BP's assets.

Saudi Arabia: King Abdullah had some interesting thoughts on religion. At a forum in Riyadh, Abdullah said:

"I want to call for conferences between the religions to protect humanity from folly." Referring to his meeting with Pope Benedict last November, Abdullah said "I wanted to visit the Vatican?and I thank him. He met me in a meeting I will not forget, a meeting of one human being with another?.

"If God wills it, we will then meet with our brothers from other religions, including those of the Torah and the Gospel to come up with ways to safeguard humanity" as the major faiths share a desire to combat "the disintegration of the family and the rise of atheism in the world."

For his part, Pope Benedict caught a lot of heat in Muslim quarters for the Easter baptism of an Egyptian-born Italian Muslim, but the overall theme of reconciliation was one of my predictions for the year.

France / Britain: President Sarkozy had a triumphant state visit to Britain and told parliament relations between the two countries had "never been so close." It should also be interesting to observers in the U.S. how France and Britain have agreed to cooperate extensively in the area of nuclear energy. We are idiots not to be pursuing this option ourselves.

Zimbabwe: Today is the presidential election and one can only assume Robert Mugabe will rig the outcome. Mugabe warned the losers not to protest the results. "We don't play around while you try to please your British allies."

Rest of the World: It's about food shortages, whether you are talking much of Asia, Egypt or Argentina, as both surging prices and supply issues (some politically crafted) wreak havoc on the lower- and middle-class.

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Have a great week. I'm off to New Orleans to visit the World War II Museum and may have a thing or two to say about this next time.

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