Week in Review 
For the week 3/31/2008 - 4/4/2008
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

Yet another pretty amazing week, thanks in no small part to the congressional hearings on the JPMorgan Chase acquisition of Bear Stearns and the Treasury Department's proposal for overhauling regulation of our financial system, including that of commercial banks, investment firms, and the insurance industry.

But for starters, the news on the economy remained gloomy. The Labor Department announced that 80,000 jobs were lost in the month of March, worse than expected, and that the unemployment rate had climbed back over 5.0% to 5.1%. Federal Reserve chairman Ben Bernanke told a joint House- Senate committee that the U.S. economy was facing "recession" and by week's end only a handful were offering resistance to the notion. Key readings on manufacturing came in at recessionary levels, again, while weekly jobless claims rose above the critical 400,000 level and a slew of big companies issued significant layoff notices. It's not just Wall Street issuing pink slips these days, it's Main Street, and the labor picture is only going to get worse in the coming months. Americans are also stretched to the limit, facing record levels of debt, and that simply means one can't spend as much.

I was watching a perma-bull blowhard on CNBC Friday morning, taking issue with the New York Times / CBS News poll that showed 81 percent of respondents believe "things have pretty seriously gotten off track," up from 69 percent a year ago and 35 percent in early 2002, but how can you not doubt this is an accurate reflection of sentiment today? Look, I'm fine, personally. Zero debt outside of a reasonable mortgage payment and a small car loan, but I'm cutting back myself these days, and I know enough about the Big Picture to understand things have seriously gotten off track. We do face an Armageddon down the road with entitlements, for example, and while we may not have to pay the piper in this regard for years to come, this issue alone should be cause for any learned American to answer a survey question such as that above in the negative. And while I focus on foreign affairs, and could think of a positive development or two, you'd have to be an idiot to then take a leap and say Iran, Iraq, the Middle East in general, Putin's Russia, North Korea or a surging China on the military front don't give one serious pause as to the future as well.

One thing is for sure, however, and that is the world has the sniffles as the U.S. has caught a cold. Every major organization such as the World Bank and the International Monetary Fund is ratcheting down growth rates on all parts of the planet. The IMF, for example, now says the world economy will grow by 3.7% in 2008. That might still sound like a decent figure, but understand that when you are talking globally, 3.0% is recession, according to these folks. How can that be, you might ask? You need some growth just to meet the needs of an ever-growing population, for starters. Think China, for example. It's commonly accepted that China needs 8% growth just to take care of the jobseekers that have flooded the cities. So if you hear China is growing at 7% in another year or two, that's recession there. The point being that the global economy is on a precipice. It can still go either way, but if you believe my global housing boom scenario and just extrapolate what's happening in the U.S. onto virtually every other nation on earth, certainly in the developed world, it's not a pretty picture.

Plus you have this inflation issue; food inflation, specifically. I remain in the camp believing that as the world slows, so will the pace of inflation. I have also warned for months now, however, that first we have to get through this rough patch and prices of all major food commodities, critically important in the developing world, continue to hit new highs on an almost weekly basis; rice being the latest story. Robert Zoellick, president of the World Bank, said "33 countries around the world face potential social unrest because of the acute hike in food and energy prices." That's a pretty bleak outlook, I think you'd agree, though I need to keep repeating another simple fact; for their part stocks don't necessarily have to go down as the economy is cratering and I'm very comfortable with my forecast of minimal losses on this front for the year.

On to Treasury Secretary Henry Paulson's "sweeping overhaul" of our financial regulatory system. Because the proposals will take years to gain approval in Congress, if at all, I'm going to largely ignore the topic going forward from here. But for now, Paulson himself starts out with the opinion, "I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil. I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years."

To attempt to summarize, Paulson and the administration's gang of rich people start off with the belief that the existing system could use a more unified structure. The Federal Reserve would gain power in that it would be able to go anywhere it's needed, but it would lose day-to-day control of the commercial banks in terms of monitoring them, which would go over to the FDIC. The Fed would, however, have control over investment banks and impose stricter controls over capital in same, but it wouldn't regulate financial products, such as the sophisticated crapola that fueled our current crisis. More on this in a second. Separately, the insurance industry would only have one national regulator to deal with, rather than each state, something it's been screaming for since Hartford Steam Boiler insured the first Easy Bake Oven. Of course this also means power is passing from the states to the Feds, in this and virtually all other areas of the financial services industry, and guess who isn't happy about this? Yup, the television-whoring state attorney generals.

There are many other items, such as a proposal to combine the SEC and CFTC, but again, knowing that this whole topic will be up for discussion and debated in Congress for years to come, I'm already bored to tears. I was just hoping that Paulson would have proposed the American League dump the designated hitter, but, alas, that didn't fall under the presidential working group's purview.

Nonetheless I guess I better include some serious commentary, such as this bit from an editorial in USA Today.

"An enhanced government role in overseeing these institutions need not be overly regulatory. Washington should have little interest in signing off on every new financial instrument issued. But if it is going to rush in when large institutions get into trouble [see Bear Stearns], it has an interest in keeping them out of trouble in the first place. This entails requiring them to maintain adequate reserves should their financial conditions rapidly deteriorate. It also entails some way to promote greater transparency and simplicity in credit markets.

"There's no sense in allowing so much of the financial world to play by its own rules when times are good and expect a bailout when they are not. That lesson was learned in the 1930s, and needs to be relearned now."

This was also a week when the Senate approved a tentative deal on a package designed to help distressed homeowners; one that includes a new standard property tax deduction for those who do not itemize, $10 billion in tax-exempt bonds for local housing authorities to refinance subprime loans and provide new mortgages for first-time home buyers, $4 billion in local grants for communities to clean-up neighborhoods with rampant foreclosures (by buying the properties outright and then maintaining them?.though bulldozing the structures is probably a better idea in many cases, mused the editor), further funds for counseling and, most importantly, at least from my vantage point, a $7,000 tax credit to purchasers of foreclosed homes.

But then you have this provision, specially designed for homebuilders, to allow them to claim current losses against taxes paid in earlier, more profitable years. What a crock. Or as the Washington Post editorialized:

"And who would be the biggest beneficiaries of this new tax break? Well, a good guess is the folks who made money hand over fist during the housing bubble but have been losing money at the same rate since the subprime mortgage market collapsed last year: the home construction industry and Wall Street firms such as Merrill Lynch and Citigroup. In other words, this provision is a large, unwarranted bailout for the very industries that helped send the U.S. economy on its scary roller-coaster ride in the first place. Business lobbies failed to get the carryback provision written into the fiscal stimulus plan that sailed through Congress in February. But it is dear to key players such as Senate Majority Leader Harry M. Reid (D-Nev.) and Finance Committee Chairman Max Baucus (D-Mont.), and so now it is back, dressed up as relief for the beleaguered housing sector. It deserves to die again."

It's particularly pitiful in Reid's case; choosing the homebuilders over the homeowners in his own incredibly distressed state. Gee, was Reid thinking about the campaign donations he might receive from the KB Homes of the world?

On the issue of the Fed and Bear Stearns, I still believe the Fed did what it had to, knowing that time was of the essence and a real systemic failure of our banking system loomed. From what we know, to let Bear fail guaranteed a panic in the markets that Monday morning.

But Andy Laperriere of ISI Group weighed in for a Journal op-ed on the environment that allowed the likes of Bear and the problems in the housing market in general to thrive in the first place.

"(The) Fed's policy of ignoring asset bubbles on the way up but aggressively responding to cushion the blow when they inevitably collapse (widely known in financial markets as the 'Greenspan put') caused investors to take on even greater risk. The adverse consequences of this loose monetary policy extend well beyond rising foreclosures and the other visible effects of the housing bust. The Fed's loose monetary policy has hurt the average American. Here's how:

--"Rolling asset bubbles have depressed wages by spurring unproductive investment, first in the tech and telecom sectors and more recently in housing?

--"The stock market and housing bubbles created windfall gains for some (who sold at the right time) and windfall losses for others (who bought at the peak)?..

--"The boom-busts have caused massive and unnecessary employment dislocation?.

--"The Fed's loose monetary policy is causing inflation and reducing the purchasing power of Americans' paychecks."

But, lastly, let's go back to Paulson's proposals. While streamlining may be in order, why did we need a crisis to concentrate the mind on the cause of all our problems? Aside from the easy money and Laperriere's points above, what about the regulation of the garbage products that were foisted on the investing public, from Los Angeles to New York to Rekyavik and beyond? Why was it that no one, particularly at the SEC, said, 'Hold on, pardner. This stuff reeks, let alone the fact no one can understand what the hell it is'? As reader Scott P. wrote, any regulatory reform should be focused "on the products these [fill in the blank] create in the name of greed." Some of us, like Scott and myself, have experience in peddling the Street's wares. I was fortunate that at least in my case, I could sleep at night over what I was selling, my last ten years or so. Such is not the case with thousands on today's Wall Street. And having come across a few of these folks in my career, I can tell you on full authority they don't give a damn about what they may have done to you or your community's pension fund.

Street Bytes

--The equity markets ignored everything above, and then some, such as another $19 billion in writedowns from UBS, or Deutsche Bank's comment, in announcing its own $4 billion writedown due to the credit crisis and housing, that "conditions have become significantly more challenging during the last few weeks," let alone the recent economic news. For the week the Dow Jones rallied 3.2% to 12609 and is now down just 4.9% for the year, while the S&P 500 picked up 4.2% and Nasdaq 4.9%.

--U.S. Treasury Yields

6-mo. 1.52% 2-yr. 1.82% 10-yr. 3.48% 30-yr. 4.32%

Bonds were little changed as traders weighed the evidence that the economy continues to slow vs. the simple fact some funds are flowing back to stocks. PIMCO's Bill Gross also noted on Friday that "Treasuries are the most overvalued asset in the world."

--Auto sales for the month of March continued their miserable trend. Chrysler's and General Motors' were both off 19%, Ford's 14%, and Toyota's down 10%. For the year thus far, sales industrywide are off 8%.

--As noted above, the layoffs are beginning to pile up, including with some big names that had already announced substantial job cuts and are now tacking on more. Such as Dell Inc., which is closing an Austin, TX, plant and eliminating 900 jobs on top of 5,500 announced earlier, while struggling Motorola is issuing pink slips to 2,600, bringing the total to 10,000 since early '07, let alone the fact Wall Street itself is bleeding profusely, even if some firms don't want to publicly talk about it.

--Congress approved legislation raising the ceiling on loans the FHA can insure to as much as $729,750 in an attempt to spark the housing sector, but as the Wall Street Journal reports, the banks making the loans are adding fees and restrictions that make them less affordable in yet another symptom of the credit crunch.

--Josh P. passed along a piece out of Philadelphia on how authorities are attempting to suspend foreclosure sales of homes whose homeowners have fallen behind on adjustable-rate subprime loan payments. Philadelphia is the first city to do this, with others such as Baltimore and Cleveland probably to follow. Whether you agree or disagree with the move, as Josh notes it's further evidence of the socialization of housing.

--According to casino analyst Bill Lerner of Deutsche Bank, 23,000 hotel or condo-hotel rooms planned for Las Vegas have been canceled or suspended recently, including another massive $5 billion project that was to be a combination of a 1,064-foot tower and 5,000-room hotel / casino.

--Once high-flying Garmin Ltd.'s earnings warning was a classic example of the slowdown in discretionary spending as the world's second-largest maker of car-navigation equipment said first-quarter revenue will drop by up to 50 percent.

--Shares in Merck and Schering-Plough tumbled on news that heart doctors at the American College of Cardiology meeting said physicians should limit prescriptions for the companies' jointly sold cholesterol drugs Vytorin and Zetia, with combined sales of $5.2 billion.

A study shows the drugs work no better than a generic alternative (Zocor) that is one-fifth the price. As cardiologist Harlan Krumholz of Yale University put it, "this study provides no new evidence to support the use of this drug, and it moves us to more uncertainty about the benefits." Krumholz, who was on the panel at the Chicago meeting, said Zetia might be "just an expensive placebo."

In response, Schering-Plough said it is forced to cut 10% of its work force and shut plants to save $1.5 billion annually, many of the job cuts coming here in New Jersey.

--Separately, a trial of AstraZeneca's heart drug Crestor was stopped early because the drug proved so effective the study's monitors felt it would be unethical to withhold treatment from half the volunteers currently receiving placebos.

--Sovereign-wealth funds grew 18% last year to $3.3 trillion and are expected to hit $10 trillion in assets by 2015. Some say this is a problem. I, though, agree with BlackRock's Larry Fink, who told Barron's:

"(The size and their investments in the U.S. are) much ado about nothing. The U.S. is dependent on foreign capital, and we must have open markets for all investors. If we did not have foreign capital, our interest rates would be much higher. Foreign capital has supported our federal deficits. The debate today is about sovereign-wealth funds investing in equities. To differentiate bonds versus stocks is very difficult, and we have never seen from sovereign-wealth funds any inappropriate investment behavior."

--John Reed, who masterminded the $166 billion merger that created Citigroup with Sandy Weill, told the Financial Times it was all a "mistake" and that the new conglomerate turned out to be a "sad story." "The stockholders have not benefited, the employees certainly have not benefited and I don't think the customers have benefited because our franchises are weaker than they have been."

One man did benefit, Sandy Weill, and Reed himself did alright.

--Lehman Brothers got taken to the cleaners by a Japanese Ponzi scheme orchestrated, allegedly, by trading company Marubeni. Lehman, which has sued the outfit, said employees of Marubeni helped arrange financing for a since-failed unit of a Japanese health care company. The cost? $350 million that Lehman provided, despite the fact documents were forged as the smartest kids on the block didn't realize they were being duped.

--U.S. Treasury Secretary Henry Paulson, in China, said "There's no doubt that what is happening in the U.S. markets (in terms of the performance of financial companies and the credit crunch) clearly has to give the Chinese pause" when it comes to further opening of China's markets to U.S. investment firms. How can you blame them, sports fans?

--Bloomberg's Thomas Black and Andres Martinez had a good piece on Mexico's state-controlled oil company Pemex and the malaise infecting this critical component of the energy picture, Pemex being the third-largest producer in the world. Production has been steadily falling since 2005 thanks to lack of investment, corruption, and bureaucratic inefficiencies. It's all critical for Mexico overall, as well, since Pemex funds about 40% of federal spending. Were oil prices not rising, Mexico's budget would be a mess.

--The problems in the auction-rate securities market continue as UBS lowered the price on its clients' statements to reflect perceived market value, while others such as Merrill Lynch kept the values at par while admitting this wasn't necessarily the case. ARS are long-term bonds that were sold as short-term cash alternatives because there was a consistent auction process every few weeks. But when the credit crunch hit in full early this year, the market froze up as the investment banks overseeing the auctions pulled in their horns. The lawsuits are flying.

--"I'm off?on the road?to Morocco??..Where is it?it's just south of Spain?.." We honor Morocco for its first quarter equity performance, up 24% in dollar terms and 16% in local currency, slaughtering every other market in the world. The worst was Turkey in dollar terms, down 37%! Gobble-gobble.

--Speaking of turkeys, try Legg Mason, which has now had to provide $400 million to bail out a money-market fund. But, to their credit, at least they are stepping up in the battle not to 'break a buck' in net asset value, which could cause a run on the bank. [This issue is different from the auction-rate securities mess.]

--We note the passing of ATA Airlines, which folded shop about a week after Aloha Airlines filed for bankruptcy. My friend Jimbo recently traveled on an ATA charter from Las Vegas to Honolulu and it was one of the worst travel experiences of his life. The plane was 23 degrees (OK, 58?.) and if you asked for a blanket, they sold you one with a logo for $10. Jim then took the blanket and parachuted to safety.

--My portfolio: I still like 80% cash, 20% stocks, though this week I sold my Mexican cement company (at a profit) due to some short-term uncertainty (I could easily get back in before long), while I bought a little in a Brazilian airline, one that I've flown before and, as opposed to Jim's ATA experience, loved everything about it. [This was when I went to Paraguay.] Otherwise, I'm riding my two big plays, the China biodiesel offering (in which I bought a smidge more) and my California- based solar operator, the latter continuing to rebound nicely. [I also won't keep briefing you on the portfolio unless I do something that warrants disclosure.]

Foreign Affairs

Iraq: The recent military action in Basra greatly complicates General David Petraeus' upcoming appearance before Congress because what is now clear is Prime Minister Maliki's efforts to beat back Moqtada al-Sadr's Mahdi Army were an unmitigated failure and that Maliki has lost any shred of credibility he still had with the Iraqi people. President Bush had praised Maliki, but the prime minister is as weak as he has ever been.

What happened is that aside from the fact the Iraqi Army was unable to capture large swaths of Basra from the militia, up to 1,000 army soldiers either defected to Sadr's side or gave them their weapons and went home. The situation was so grave, Maliki was forced to sue for peace. For his part, Senator John McCain (another loser in this episode) said he was surprised Maliki acted initially without U.S. approval.

NATO summit: President Bush achieved two of three objectives at the confab in Bucharest. His efforts to put Ukraine and Georgia on fast-track for membership were derailed by 'Old Europe,' led by France and Germany, who worry about provoking Russia at this point, though at the same time Croatia and Albania were invited. With regards to Ukraine in particular, I agree with Bush's appraisal that Ukraine deserved a bid because it "is the only non-NATO nation supporting every NATO mission" in sending troops to Afghanistan, Kosovo and Iraq. At the same time, though, Ukraine remains a divided country with loyalties to the West and Russia split right down the middle.

But Bush achieved important victories in the area of missile defense, with NATO approving of his plan for sites in Poland and Czech Republic, while France led the way in committing to more troops for the war in Afghanistan, which in turn ensures Canada's continued support. And in his first, and last, appearance at a NATO summit as president, Vladimir Putin behaved himself. On Sunday, Bush and Putin are holding a quick summit in the Black Sea resort of Sochi, their last one-on- one before Putin shifts over to the prime minister's slot.

Iran: CIA Director Michael Hayden, appearing on "Meet the Press," said that despite the recent release of the National Intelligence Estimate, which painted a sanguine picture of Iran's nuclear weapons program efforts, it's clear Iran is intent on the idea. But in the Jerusalem Post there was an AP item that said diplomats, speaking on condition of anonymity, believe that while Iran supposedly has been linking strings of 300 centrifuges, the key to enriching at least small amounts of uranium, the actual work is "preliminary," with none running and none installed in the main plant. Which just points out that no one has a freakin' clue even as I maintain Israel will be forced to launch a preemptive strike by year end.

Israel/Palestine: Israeli Prime Minister Olmert caved to his extremist coalition partners and is allowing 1,400 new homes to be built on disputed lands, just hours after Secretary of State Condoleezza Rice left Israel with her declaration that "settlement activity should stop."

The following viewpoint of Rami Khouri, from an op-ed in Lebanon's Daily Star, dovetails with my own beliefs as spelled out over the years.

"It is hard to tell if U.S. Secretary of State Condoleezza Rice is being deliberately innocent and juvenile, or, as the highest American foreign policy official, she is genetically incapable of being honest when it comes to Palestinian-Israeli issues. There is now only one real test of progress, or criterion of political seriousness, in the Arab-Israeli conflict in the short term: Can the United States make Israel stop expanding its settlements in the occupied Palestinian territories? If not, talk of peace is a cruel hoax that will only raise and then dash expectations, leading to unknown consequences when the backlash occurs.

"Continued Israeli settlement in occupied Palestinian land is the single most destructive and dangerous reflection of the long- running Palestinian-Israeli conflict. It captures in a single dynamic the predatory nature of Zionist aims, the conquest and settlement of Arab land by Israelis, and the continued dispersal and ethnic cleansing of the Palestinians. If peace-making is to have any chance of success, Israeli colonization of Arab lands must be halted and then largely reversed under final-status agreements.

"The Palestinians for their part have to reciprocate, of course, with a move of equal magnitude. But the Palestinians, especially President Mahmood Abbas and his Fatah movement who still head the Palestinian Authority in the West Bank, cannot make any meaningful move without Israeli permission. They cannot expand, equip or train their police force; they cannot import or export anything; they cannot drill water wells or build roads; they cannot go shopping in Paris; they cannot even hold a meeting of their full Parliament without explicit permission from the Israelis.

"The Palestinian-Israeli 'peace process' in its current form has lost all seriousness due to the severe imbalance in power between the two sides. Into this difficult situation steps the American government, vowing admirably, as it did at Annapolis four months ago, to exert vigorous efforts to achieve peace by the end of this year. Two things have been consistent since then, however: senior American officials travel to Israel regularly to push the peace process forward, and with every such visit the Israeli government announces new settlement expansion plans?.

"The continued expansion of Israeli settlements is a dagger simultaneously pointed at the hearts of Palestinian negotiators and American mediators. One reason why so many Palestinians have lost hope in a negotiated peace, and have instead supported Hamas and others who fight Israel militarily, is the continued settlement activity by Israel and the apparent acquiescence by the U.S. and the rest of the world.

"Fatah and Abbas have pleaded with the U.S. and Israel for years, to no avail. They point out the illegality of the settlements under the Geneva Convention rules and UN Security Council resolutions, to no avail. No wonder they keep pleading, and Rice believes things are moving in the right direction. They do not want to pause for a moment, look up, see the reality of the world, and catch sight of the refrigerators that are about to fall on them and ruin their efforts."

Back to Olmert, it was revealed that he declared for the first time the attack in Syria last fall was intended to destroy a nuclear facility being built by North Korea. [Olmert did this through a meeting with Japanese officials in February.] While at the Arab League Summit in Damascus, the Saudis blamed Syria for the problems in Lebanon.

Pakistan: As suspected by the White House, the new government here will press the U.S. to stop firing missiles in the tribal areas without prior approval, which is unlikely to be granted. Former Prime Minister Nawaz Sharif, one of the two main coalition partners, is adamant there be no involvement of any foreign forces in Pakistan.

But the issue of Predator attacks is so important to the U.S., it will undoubtedly deal (in major amounts of cash) to allow the border area attacks to continue, especially as Washington builds its case that the Pakistani-Afghan border area has become a permanent base for the Taliban, as well as al Qaeda.

China: German Chancellor Angela Merkel became the first Western leader to announce she would boycott the entire Olympic Games, not just the opening ceremony, while the IOC warned China it was obligated to keep the Internet open during the Games, this as China was forced to admit it is facing fairly widespread unrest in its Muslim majority western provinces. The situation both here and in Tibet is also fueling a backlash in terms of rising Chinese nationalism, especially among the young, who believe the government isn't taking a tough enough stand on Tibet's protesters.

China is also one of the many Asian nations dealing with soaring food prices and there has been panic buying at supermarkets as such staples as imported eggs have risen 30% in two months.

On the China-Taiwan front, so far the rhetoric has been positive following the election of Taiwan's President-elect Ma. Both he and Chinese Premier Wen Jiabao have stated they are willing to negotiate on issues such as trade and tourism, but the sticking point will remain the interpretation of "one China," which was purposefully left vague in a 1992 'consensus' between the two. As Ma is quick to add, Taiwan is also still being targeted by 1,000 missiles.

But back to the Olympics, the Western media is doing an awful job of portraying both sides (and there are two) with regards to the violence in Tibet. Christopher Caldwell addresses this in an op-ed for the Financial Times.

"The Dalai Lama's complaint that China is committing 'cultural genocide' against Tibetans has not helped. The genocide in question involves Beijing's encouragement of immigration by ethnic Chinese people, who reportedly make up a third of the population of some Tibetan cities. Europeans who fear their cultures are being eroded by immigration and Americanization seldom receive support from human-rights activists. Tibetans who fear Sinification are being held to a much lower standard. China, while hardly blameless, has been assigned the role of bogeyman. Like Israel during the second intifada, it gets blamed for policing too harshly, and it gets blamed when thugs go out and murder its citizens [ed. as was clearly the case in Lhasa, as much as the West wants to ignore this fact.]

"It is unlikely that sporting boycotts can put pressure on China as they put pressure on South Africa in the last decades of apartheid?.Many defenders of Tibet behave as if all the west needs to do is to summon its eloquence and courage?.

"But the West's assessment of its moral prestige and influence is inflated. James Mann, the veteran reporter, made the wise point in his book, 'The China Fantasy,' that wishful-thinking westerners often use the word 'ill-advised' to describe China's crackdowns, as if its leaders were just learning the ropes of modern-day governance and yearning for guidance. 'Rarely is it acknowledged,' he writes, 'that the Chinese leadership did precisely what it intended, anticipating the international criticism in advance and deciding to ignore it.'

"China's standing in the world, unlike that of South Africa, does not rest on anyone's approval but on military and (especially) economic power?.

"A boycott of the Olympic opening ceremonies might cause China brief embarrassment and deprive it of a vanity-enhancing spectacle. It would allow westerners to protest while continuing to benefit from China's cheap exports and big markets. But it would not change the objective realities one whit."

North Korea: Pyongyang launched a salvo against South Korean President Lee, calling him by his name for the first time since he won election in December. "The Lee Myung-bak regime will be held totally responsible for ushering in a catastrophic incident by freezing North-South relations." The North later said it was considering unspecified military "countermeasures" against the South, this after President Lee said Pyongyang should "move away from its previous ways and actions" so that the two countries could "engage in sincere dialogue." The North then announced it was suspending all dialogue with South Korea and closing the border to government officials.

One sidebar to the escalation in the war of words is the fact that with reduced food aid, particularly from a now reluctant South, the North Korean people are once again caught in the middle, amidst what some call a famine.

Zimbabwe: Opposition leader Morgan Tsvangirai and his MDC party supposedly topped the 50% mark in last weekend's election, but President Robert Mugabe, as of this writing, is not conceding defeat and could call for a runoff in 21 days as his goons hit the street.

Ireland: Prime Minister Bertie Ahern was forced to step down after ten years in power due to an ongoing probe involving illegal payments to politicians. Ahern oversaw the Irish economic boom (which is turning into a bust at lightspeed, though the Irish themselves are slow to recognize this) and he deserves credit for his role in Northern Ireland's peace talks. The replacement is slated to be Brian Cowen.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $917
Oil, $106.39

Returns for the week 3/31-4/4

Dow Jones +3.2% [12609]
S&P 500 +4.2% [1370]
S&P MidCap +5.5%
Russell 2000 +4.5%
Nasdaq +4.9% [2370]

Returns for the period 1/1/08-4/4/08

Dow Jones -4.9%
S&P 500 -6.7%
S&P MidCap -5.0%
Russell 2000 -6.8%
Nasdaq -10.6%

Bulls 36.4
Bears 37.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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