Week in Review 
For the week 4/7/2008 - 4/11/2008
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

While we await the data on first quarter GDP to see if the government's figures confirm what appears to be the obvious, there is no shortage of esteemed experts claiming the U.S. economy is in recession, ranging from former Fed chairman Paul Volcker, to Nobel Prize-winning economist Joseph Stiglitz, to PIMCO's Mohamed El-Erian, just for starters. For his part, Stiglitz says the recession will be "long and deep." And when it comes to housing, the source of all this evil, the latest survey of economists by the Wall Street Journal has 73% believing the bottom won't be hit in home prices until the 1st-half of 2009 at the earliest.

In fact all manner of projections continue to be ratcheted down, in terms of growth, while figures on the total damages, as in for the credit crisis, are ratcheted up. Federal and state budget deficits are yet another victim, as revenues in virtually every case are beginning to fall off the cliff.

Even stalwart GE, out of nowhere, missed its first quarter earnings mark badly on Friday, but here your faithful editor was well ahead of the game.

From WIR?2/2/08

"But what of all those multi-nationals such as GE, Microsoft, IBM, or Caterpillar that speak of softness in their U.S. numbers but, because they receive a majority of their orders from overseas, are telling us talk of a global slowdown is bunk?

"Here's my take. GE will be among those missing expectations at some point in 2008. The global economy, beset not just by the bursting of my global real estate bubble, but also ever-rising food prices, and stubbornly high energy costs, will continue to slow. Armageddon? No. A worldwide recession? Yes. Admittedly, though, there will be more than a few times when I'll look foolish with this forecast but I'll be sitting back in my easy chair, musing about the Big Picture while the stock and bond markets play 'helter-skelter.'"

No one else was writing that about GE just two months ago, though I admit I would have thought the miss would come later in the year.

If you're a raging bull, you couldn't have been too pleased with release of the Federal Reserve's minutes from its March 18 meeting. Some on the Open Market Committee were concerned about "a prolonged and severe economic downturn," while there was increased talk of an "adverse feedback loop." "Several participants noted that the problems of declining asset values, credit losses, and strained financial market conditions could be quite persistent, restraining credit availability and thus economic activity," according to the minutes. And the same minutes noted "a retrenchment in capital spending."

Billionaire investor George Soros reiterated some of his past musings in saying this week that when it comes to real estate, "It will take much longer for the full effect of the decline in the housing market to be felt."

Back to ratcheting up and down, just six months ago the International Monetary Fund said total losses for banks, hedge funds, pension funds, insurance companies and sovereign wealth funds as a result of the credit crisis would be $240 billion. This week they took it up to $945 billion, a slight increase. At the same time the Bank for International Settlements, keeper of the figures on funky investments, i.e., derivatives, such as credit- default swaps (contracts designed to protect investors against default and used to speculate on credit quality), said the market for this product grew at the fastest pace in at least nine years to $516 trillion (twelve zeroes) in notional value in the first half of 2007. [Bloomberg News]

As for global economic growth, the IMF has lowered its forecasts yet again, saying the U.S. will be in recession for part of this year, but only recover to a 0.6% rate of growth in 2009. The Eurozone, also lowered anew, is now projected to grow just 1.4% in 2008 and 1.2% next year.

Following are a few notes from abroad, starting with my global real estate bubble theme.

Home prices in the U.K. fell 2.5% from February to March, a rather sizable decline and the worst since 1992. The chief economist at Deutsche Bank AG in London, George Buckley, told Bloomberg, "We're in for a long period of house prices falling or not growing at all." [A major reason why the Bank of England lowered its key lending rate this week.]

In Spain, bubble central for Europe (though with Britain and Ireland hot on its heels), they attempted to hold the first "Dutch auction" for properties but of 216 lots, 194 were withdrawn when they weren't purchased at the reserve price, which was set at discounts of around 30%.

In Japan, Akira Mori, the nation's richest man and a big investor in real estate, said "The boom we've enjoyed for the past few years is over. Investors were convinced that prices would keep rising, so in about six months, they'll probably rush to get out regardless of price."

More broadly, in Australia, business conditions are deteriorating rapidly amidst a slump in business confidence to its lowest level since September 2001. Housing is on the verge of rolling over here as well.

But then we have this issue of food prices and a main staple for much of the world, rice. By some measures, the price of this humble seed that bursts with flavor after sprinkling a little Lawry's on it, is rising at its fastest pace in 25 years. It's gotten to the point where I tried to grow some in my jacuzzi, but I think I had the water level too high, plus I wasn't about to let a team of oxen tramp through my place.

My agrarian failure aside, we truly have a food crisis and it's important to note that in the developing world 50% to 60% of income goes to food. In the case of rice, though, hoarding is a major culprit as leading exporters, such as Thailand, refuse to increase the level of same at the risk of not being able to take care of their own people at realistic prices. [Thailand does say, however, that prices will come down with the April-June harvest, something worth watching.] In others nations, such as Egypt, it's about wheat and the soaring price of bread. I have to admit I had no idea Egyptians are the largest consumers of bread in the world, three times the level of baguette eaters the French.

Rioting over rising prices continues to spread and IMF head Dominique Strauss-Kahn said in an interview with France 24 television:

"Today there is not just a crisis purely about growth, there is a crisis at least as important developing through the pick up in inflation and the prices of commodities, notably foodstuffs. In a number of countries, notably in Africa, this is going to lead to economic disorders but also considerable individual suffering."

Lastly, as various readings on consumer sentiment continue to plunge, such as a horrible University of Michigan survey that came in at its worst level since 1982, there are some disturbing reports on our feelings toward retirement. The Pew Research Center revealed that among the middle class (defined as income from $40,000 to $100,000 these days), 54% said they had made zero progress in the last five years, while a survey for the Employee Benefit Research Institute showed that only 18% are confident they will have enough for retirement, down from 27% a year ago.

Street Bytes

--After a nice stretch of performance, stocks took it on the chin this week with the lion's share of the losses coming on Friday after GE's dreadful earnings miss, 7 cents, by god. But it wasn't just about the first quarter, as CEO Jeffrey Immelt said "In light of what we have seen?we have revised our earnings outlook for the full year to protect investors by reflecting a slower economy and assuming capital markets remain challenging. We are lowering our full-year EPS guidance to $2.20-$2.30 [from analyst estimates of $2.40+.]" As I alluded to above in my comment from this past February, down the road look for similar comments from the likes of IBM and Microsoft. For now, the earnings train is just taking off and the next few weeks could be hairy.

On the week the Dow Jones gave up 2.3% to close at 12325, while the S&P 500 lost 2.7% to 1332 and Nasdaq dropped 3.4% to 2290.

--U.S. Treasury Yields

6-mo. 1.39% 2-yr. 1.74% 10-yr. 3.46% 30-yr. 4.29%

Bonds rallied, particularly on the short end, as GE's report added credence to the feeling the economy is in need of further rate reductions when the Fed next meets April 29-30, at which point it is expected to lower rates another 25 basis points (1/4%). But the European Central Bank held the line on rates this past week as ECB President Jean-Claude Trichet said "We are experiencing a rather protracted period of temporarily high annual rates of inflation," adding ensuring price stability is "very serious for us."

--Las Vegas real estate bits:

Of the 22,000 single-family homes on the market here, 51% are vacant. And there are now 1,000 houses listed for sale at $1 million or higher, 600 of them built since 2004. Then you have the investors getting taken for a ride in the condo-hotels. As reported in the Wall Street Journal, you have cases such as this one fellow who purchased a $550,000 unit at the MGM Grand in 2005, counting on the cash flow from renting his unit to cover his $3,000-a-month mortgage, leaving him with a profit. But today he is netting only between $400 and $1,800 a month before his mortgage payment. That should be a lesson to all who may be thinking of acquiring such a unit anywhere in the world.

Meanwhile, room rates are plunging in Vegas. A survey of average hotel prices for the upcoming week of April 27 through May 3 reveals they are down 23%.

The other day CNBC had this shill for Vegas real estate on, Sarah Prinsloo, who said Sin City was "recession resilient." Right.

--Delinquencies on mortgages nationwide are now running at 4.46% vs. 2.92% a year ago. [The figure is 7.0% in Florida, 6.6% in Nevada.]

--$715 billion in consumer debt is delinquent.

--The price of gasoline hit a record $3.36 a gallon according to AAA, and with gasoline futures closing the week at $2.80, prices are poised to move even higher.

--An assessment by the U.S. Geological Survey estimates that the largest potential oil resources in the continental United States lie in an area of shale in a region between North Dakota and Montana, and it could be extracted using current technology. Quick, snap up the land!...........sorry, too late. [This same area is also part of the prime wind corridor and has been attracting attention for years.]

--The Energy Information Administration sees $101 per barrel oil for 2008, a huge increase from its earlier projection, even as global demand softens. This week oil rallied to $112 intraday before closing at $110, as inventories took an unexpected plunge.

--Mexican President Felipe Calderon, whose performance has been terrific thus far amidst a world of troubles, has called for sweeping reform of state oil giant Pemex in terms of allowing it to contract out more work to boost rapidly sagging production and exploration. This is critically important to the United States.

--I agree with Senator John McCain and his call to stop adding oil to the nation's Strategic Petroleum Reserve. It's absurd we're still stockpiling it to the tune of 70,000 barrels per day. Yes, it won't have a meaningful impact on the supply/demand picture but that doesn't mean you shouldn't still stop it. And not for nothing, but we already have a 35-day supply?.if we couldn't find another drop, from any source, anywhere in the world.

--Thanks to the surge in grain prices, land values continue to escalate in the Midwest, up 67% in five years in Iowa, for example. But this also means massive debt loads for the American farmer. The USDA forecasts that farm business debt will hit $228 billion in 2008, to set a record for a fourth consecutive year. As I wrote when I was in Iowa last August, of course this is yet another bubble and will end badly at some point just like all the others.

--China has let its currency, the yuan, rise against the dollar in an attempt to blunt rising inflation as imported goods then become cheaper, which is also what the U.S. and Europe have been complaining about for years as they seek more exports to China. The flip side is Chinese products coming here are more expensive, so they are exporting inflation.

[China revised its official GDP figure for 2007 to 11.9% from 11.4%, the fifth straight year of above 10% growth.]

--Yahoo is being incredibly foolish in not accepting Microsoft's original $31 a share offer. Microsoft has issued a deadline for Yahoo to take it or it's launching a hostile bid, and probably at a lowered price, while I grow weary of the whole story and talk of other players becoming involved.

--Washington Mutual has been expanding like crazy in my neighborhood the past five to seven years, which I always found amusing, seeing as how I never saw anyone in the branches when I'd walk by, and so this week they raised $7 billion in badly needed capital, nearly doubling the number of shares outstanding in the process, thus rather significantly diluting existing shareholders. Yet for some dumb reason, the share price held up reasonably well, despite the fact, sports fans, that even in a recovery, if and when that occurs, you divide the profits into the number of shares?..oh, never mind. I'm just miffed I was a year early in buying puts on WaMu. Right idea, wrong timing. [Reader Josh P. out west got it right, though, and is still drinking premium as a result.]

--Private-equity companies paid $1 billion to securities firms in the U.S. and Europe during the first quarter, down from $4.3 billion a year earlier. As if that wasn't bad enough, investment banks saw their revenue from loan underwriting plummet more than 91 percent and fees from advising on takeovers 51 percent. Not a pretty picture if you're wondering where this group is going to get its earnings.

--Merrill Lynch reports next week and is expected to take further writedowns of $6 billion to $6.5 billion. CEO John Thain, however, has maintained Merrill does not need to raise new capital.

--David P. passed along a note from Credit-Suisse, re: Goldman Sachs, which "dumped $500 million of the unsellable Chrysler loans at 63 cents on the dollar to a group of varied investors. The implied yield on the debt at that price is well over 20%." Draw your own conclusions.

--With my own funds, I have never 'stretched for yield' with assets I've allocated to cash. I stick with plain vanilla money market funds, even as the amount paid out falls. But once again the industry has another black eye as Schwab YieldPlus, pitched as a money market alternative, is off a staggering 24% in 2008 because it got caught up in the mortgage crisis.

--"60 Minutes" had a piece on sovereign wealth funds last Sunday and they did a poor job in spelling out the issues. Here's the bottom line. Americans should NOT be concerned when they hear of funds, even out of China, that are investing in our banks, for example, unless you hear they are packing the board of directors, which in virtually all cases thus far hasn't been the case. [The Chinese fund highlighted on "60 Minutes" has never asked for board representation.]

Where the trouble arises, and where the program confused viewers, is with the mammoth reserves of U.S. Treasuries that the governments hold, such as China's humongous position. Of course if they decided to dump a sizable portion of this, as I've long discussed in the past, it would create an issue and is quite conceivable if, for example, China sought to take back Taiwan and we threatened to come to its defense. "Oh no you don't. We'll tank your economy." Remember what I've said. Under that scenario it would harm China's own economy only briefly because the rest of the world, after a few weeks pause and harrumphing in the UN, would go right back to business as usual.

The bigger issue when it comes to China is in the field of technology espionage, especially on the defense front. They've been building their spy network here for decades, long before the first sovereign wealth fund was created. Bottom line, each case is different and needs to be handled accordingly.

--The New York Mets will be opening Citi Field next spring. That should be a troubling sign to many, given the recent history of sports stadiums and the fate of the corporate names adorning them.

--What a freakin' mess as AMR was forced into a second round of massive flight cancellations due to the FAA's ongoing crackdown on safety inspections. Clearly, the FAA has been slack in enforcing the rules and in the game to play catch up, the flying public is once again getting screwed.

--Frontier Airlines became the latest to file for bankruptcy, though in this case, Frontier is merely looking to reorganize while continuing operations.

--Capital One Financial is slashing 750 out of its work force of 2,000 in the U.K. AMD is cutting 1,650 jobs.

--I missed this last time, but Josef Stalin's former oil minister died, Nikolai Baibakov. He was 97. I mention this because in reading his obituary, Baibakov's story is one of survival, to say the least. He was named Stalin's oil commissioner in 1944 and stayed in government until Mikhail Gorbachev fired him in 1985.

But it was in 1942 that Stalin summoned Baibakov and told him he would be shot if the advancing Nazi army seized oil wells in Soviet Azerbaijan. Then Stalin said he also would be shot if, after the war, the wells couldn't be returned to production.

"If you leave at least a ton of oil to Germans, we will shoot you," Baibakov quoted Stalin as saying. "But if the Germans don't get there, and we are unable to restart the production, we will shoot you too."

Well, Baibakov would go on to spearhead postwar development of the USSR's oil and gas deposits in Siberia, having received a reprieve.

--I've always said the debate over global warming needs to be reshaped, relabeled, to one over 'global pollution.' This few could then dispute. So I was reading a piece in the Wall Street Journal on how difficult it is to get down to zero emissions in automobiles (as in the first 98% is relatively simple, it's the final 2% that's the problem), and there was this tidbit.

"The number of dangerous smog alerts in Southern California has dropped to just one or two per year, compared to roughly 180 days a year in the mid-1970s."

Clean air and clean water are our birthright?.period. Those growing up today can't begin to understand just how poor the air quality was in much of this country in the 60s and 70s. And who deserves a fair amount of credit for the improvement? Richard Nixon, who established much of the environmental framework we know of today.

--Two people have died in Spain after contracting the human form of 'mad cow disease' (vCJD), one three months ago, the other last week. Not good.

--Bird flu keeps simmering, with Chinese officials confirming a father caught it from his son last December, making it about a dozen times this has occurred in countries including Cambodia, Thailand, Vietnam and Indonesia. But the virus has yet to be spread into the wider community. In the China case, the son died and the father recovered.

"An air of tension still surrounds this disease," notes Dr. Jeremy Farrar of the Hospital for Tropical Diseases in Ho Chi Minh City. "Given that the species barrier can be breached, the intriguing question is why the transmissibility of H5N1 among people remains so low?"

As of April 3, the World Health Organization has reported 378 cases and 238 deaths worldwide. [South China Morning Post]

--My quest for wild salmon is not looking good these days as there are proposals for a complete shutdown of the Pacific salmon season as a way of preserving the species for future years amidst the overfishing that has decimated the population.

--Chris C. passed along a piece I had missed; a survey of financial literacy among high school seniors, sponsored by the Jump$tart Coalition for Personal Financial Literacy (and paid for by Merrill Lynch). Only 48.3 percent of questions on basic personal finance and economics were answered correctly, such as only 16.8% correctly answered that stocks likely would offer the higher rate of growth over 18 years of saving for a child's education, while 37.3% thought a highly conservative U.S. savings bond would offer a better one.

--Lastly, former Fed chairman Alan Greenspan continues to attempt to reshape his legacy, hitting back at critics. What no one is mentioning in the articles, though, is the role his wife, NBC's Andrea Mitchell, must be playing behind the scenes. "Now you go out there and tell them to stick it!" "But?." "No buts?.just do it!"

From Greg Ip's column in the Journal:

"Mr. Greenspan says he doesn't regret a single decision. In his view, many critics are ignoring evidence in his favor and failing to assess the process by which he made decisions."

[A cousin of mine and her husband sat next to Greenspan and Mitchell at a Washington dinner last year and my cousin said the two couldn't have been more unfriendly and stuck up.]

Foreign Affairs

Iraq: I was able to watch virtually all of Gen. David Petraeus' and Ambassador Ryan Crocker's appearance before two Senate committees and it was not a command performance. The facts on the ground, even as the surge has led to some progress, particularly in terms of the levels of violence, simply do not allow for any gloating. General Petraeus himself said "The champagne bottle has been pushed to the back of the refrigerator. And the progress, while real, is fragile and reversible."

What was striking were the pointed questions coming from respected Republican Senate leaders such as John Warner ("Are we safer?") and Richard Lugar, who blasted the Iraqi government. Lugar:

"(Despite) the improvements in security, the central government has not demonstrated that it can construct a 'top-down' political accommodation for Iraq. The Iraqi government is afflicted by corruption and shows signs of sectarian bias. It sill has not secured the confidence of most Iraqis or demonstrated much competence in performing basic government functions."

That's the bottom line, no matter where you stand. Congress appropriately asked the same question over and over again, "Now what?" And in terms of an inevitable withdrawal, be it 2009 or 2019, what are truly the consequences, aside from the pat administration response (and that of Senator John McCain) that all hell will break loose in the entire region? I happen to believe this myself, but there hasn't been any real debate on this specific issue.

Ambassador Crocker, for example, trumpets the party line that al Qaeda has been seriously degraded, thus we're safer, but what of the fact Iraq is the prime recruiting tool? Where there is encouraging news on this last bit, however, is that more Iraqis are standing up against al Qaeda than were a year ago.

So there has been success, but it's also clear President Bush is dumping the war in the lap of the next occupant of the White House, which also means another thing. You can kiss off all the campaign rhetoric from both sides when it comes to virtually all their domestic initiatives, because there simply isn't going to be any money to pay for them as long as the wars in Iraq and Afghanistan are going full tilt. Let alone we have sliding revenues as a result of the stumbling economy. General Petraeus' tone this week was best described as 'sober.' I'd call it depressing.

A few other items. Bush and Petraeus agreed that there should be a 45-day pause to reassess, in July after the surge troops have been withdrawn, in order to figure out whether further withdrawals of a then force of 140,000 can be made. [Defense Secretary Robert Gates continues to say further withdrawals will be made, potentially setting up a contest next fall with Bush and Petraeus right before the election.] Even the good news for the soldiers and their families, that tours will be reduced to 12 months (effective with new deployments Aug. 1), with one year at home before further tours of duty, is tempered by the fact that there appears to be no break in the cycle, especially when one considers that the U.S. is looking to increase forces in Afghanistan, which are going to have to come from Iraq, seeing how stretched the military is. Heaven help us should Kim Jong- il or his generals lose control of their senses.

One point that Congress kept hammering home that the administration must follow through on is sharing the costs of the war in Iraq. There is no reason why Iraq shouldn't be paying a significant amount of what American taxpayers have been shelling out.

Separately, there is evidence that when the Iraqi Army encountered difficulties in Basra, it ignored the British, who until recently held the city, and instead called on the Americans for assistance, what the London Times has called a "catastrophic failure" in relations between Iraq and the U.K. A supreme humiliation.

Lastly, the elephant in the room this week was Iran. It didn't help matters that Tehran announced another expansion on the centrifuge front. If they are telling the truth, and who the heck knows if they are, it's yet another worrisome development. One thing we do know, however, is that once Iran obtains a usable amount of weapons grade uranium, it has the missile systems to deliver it. Again, Israel is going to be forced to act, sooner than later.

China: British Prime Minister Gordon Brown became the latest European leader to announce he would boycott the Olympic opening ceremonies, joining French President Sarkozy and German Chancellor Merkel (who said she wouldn't attend at all). President Bush, however, is sticking to his plans to travel to Beijing.

Bush is making the right call. Here's my bottom line on this one. China should not have been granted the Games in 2001 in the first place. But there were no real protests until just recently and as I've stated before now is not the time to poke China in the eye.

Regarding Tibet, the coverage of the crackdown has been incredibly one-sided, as well as a failure to understand Beijing's indignation; such as with a U.S. Congressional resolution calling on China to initiate discussions with the Dalai Lama, while adding China's response was "disproportionate and extreme." The resolution also stated numbers killed and detained without citing the source of its information, while China has held at least six rounds of talks with the Dalai Lama's representatives.

I do not condone the violence, but understand it has gone both ways, which the media readily ignores. Chinese nationals were killed at the hands of Tibetans in the riots.

The world is not all black & white, least of all China. Let them have their Games, at this point, but be very firm on issues such as promised press access, while continuing behind the scenes to urge the government to meet with the Dalai Lama directly.

Remember, it's the year of the rat, and the rat is cornered. Give it some space and China may figure its own way out of the crisis relatively peacefully.

As for the torch relay, times have changed, to say the least. Shelve it for all successive Games. It's too late to do that this year, though.

Iran: President Ahmadinejad dismissed his economics and interior ministers amidst growing problems with the economy, starting with 18% inflation.

Israel: Prime Minister Olmert and Palestinian President Mahmoud Abbas held formal talks for the first time in months, while the May issue of The Atlantic has a controversial piece by reporter Jeffrey Goldberg. Following is but a brief excerpt.

"The latest iteration of the never-ending Middle East peace process, launched in Annapolis late least year by President Bush, is in many ways a farce. Olmert's ruling coalition is unstable, and he is deeply unpopular. Bush shows no sustained interest in understanding the dispute. Condoleezza Rice is ignored across the Middle East. And Abbas' authority doesn't radiate far beyond Ramallah, the de facto Palestinian capital. The tragedy of this farce is that this could be the last time a two-state solution is seen as a viable option. It is a clich? for Middle East leaders to warn that time is running out [Ed. as in Jordan's King Abdullah], but today it seems that the possibility of a two-state solution is swiftly fading. Palestinian rejectionists and unbending Jewish settlement leaders are in harmony on this point. 'It does not matter what the Jews do. We will not let them have peace,' Ibrahim Mudeiris, the imam of the Ijlin Mosque in Gaza, told me not long ago. We spoke after Friday prayers. The street outside the mosque was crowded with angry young men who had been excited by Mudeiris' sermon, in which he identified Jews as 'the sons of apes and pigs.'

" 'They can be nice to us or they can kill us, it doesn't matter,' he said. 'If we have a cease-fire with the Jews, it is only so that we can prepare ourselves for the final battle.'

"For Palestinian radicals, the closing of the settlements would be a terrible blow. The smartest Palestinian strategists understand this. 'The longer they stay out there, the more Israel will appear to the world to be essentially an apartheid state,' the former Palestinian Authority negotiator Michael Tarazi told me a few years ago. 'The settlements mean that the egg is hopelessly scrambled. Basically, it is already one state.'

"The hard-core settlers are as intransigent, and as patient, as their Palestinian counterparts?.

"The Camp David negotiations in 2000 collapsed mainly because the Palestinian leader, Yasir Arafat, was unable to strike a final deal with Israel. During the seven years of the Oslo peace process, which was meant to negotiate a Palestinian state into existence, the number of Jewish settlers in the West Bank nearly doubled. It is difficult to blame Palestinians for their cynicism about Israeli intentions regarding the West Bank. Only by closing outposts and dismantling settlements can Israeli leaders help the Palestinian moderates, and themselves. When I asked Olmert why he argues for an Israeli withdrawal from Palestinian territory but allows the expansion of existing settlements and the continued existence of illegal outposts, he barked, 'I dismantled Amona!' Amona is the outpost that came down in February 2006?.

"Not one outpost has been dismantled since Amona was closed, and none seems slated for impending disappearance. This is the core (of the) criticism of Olmert. The prime minister is a skilled rhetorician but a political coward, one who speaks the language of reconciliation but whose actions in Lebanon, and in Gaza, suggest something else."

North Korea: It's easy to dismiss the threat from here. 'They couldn't possibly be so stupid as to launch an attack on South Korea,' for example. But they have been involved in proliferation activities and I keep going back to my concern of the past few years?just who the heck is behind Kim Jong-il? Are the generals pragmatists? Are they hardliners? Are they nothing more than drug runners living high on the hog while the people suffer? We don't have any damn idea. Our intelligence is absolutely non-existent on this critically important issue.

But at least South Korean President Lee has showed some real backbone and Lee is one who will not just give $billions in badly needed food aid to Pyongyang, for instance, without gaining something in return.

For its part, Japan extended economic sanctions on the North for another six months, citing the lack of a breakthrough on the nuclear program front, as well as a resolution of past abduction cases. There are also rumors the U.S. may be willing to compromise, but we've heard this before and the Japanese will be none too happy should this prove to be the case.

Colombia: The House voted 224 to 195 to put off consideration of the free trade agreement with Colombia until Speaker Nancy Pelosi deems it appropriate. Earlier, President Bush had submitted a 90-day deadline for considering the pact. Bush was none too pleased at the Democrats' response.

"Today's unprecedented and unfortunate action by the House of Representative led by Speaker Pelosi to change the rules governing legislation to implement our trade agreement with Colombia is damaging to our economy, our national security, and our relations with an important ally. It also undermines the trust required for any administration to negotiate trade agreements in the future."

I couldn't agree more with the president. This is an abomination and an incredible slap in the face to our Colombian allies and its great leader, Alvaro Uribe.

Secretary of State Condoleezza Rice:

"The fate of this agreement raises even larger questions: How does the U.S. treat its friends, especially when they are under pressure and attack? Will we remain engaged as a global leader, or will we pull back unilaterally? Will we define our role in the world by confidence in our own principles, or by capitulation to unfounded fears? The eyes of many nations, particularly those in our own hemisphere, are upon us, and let no one think that the choices we make will not echo around the globe." [Wall Street Journal]

Editorial / Washington Post

"The year 2008 may enter history as the time when the Democratic Party lost its way on trade?.

"Ms. Pelosi denies that her intent is to kill the bill, insisting?that Congress simply needs more time to consider it 'in light of the economic uncertainty in our country.' She claimed that she feared that, 'if brought to the floor immediately, [the pact] would lose. And what message would that send?' But Ms. Pelosi's decision-making process also included a fair component of pure Washington pique?.

"That political turf-staking, and the Democrats' decreasingly credible claims of a death-squad campaign against Colombia's trade unionists, constitutes all that's left of the case against the agreement. Economically, it should be a no-brainer - especially at a time of rising U.S. joblessness?.The trade agreement? would give U.S. firms free access to Colombia for the first time, thus creating U.S. jobs?.

" 'I take this action with deep respect to the people of Colombia and will be sure that any message they receive is one of respect for their country, and the importance of the friendship between our two countries,' Ms. Pelosi protested yesterday. Perhaps Colombia's government and people will understand. We don't."

Russia: President Bush's last summit with Vladimir Putin produced no breakthroughs, but they did take in a lovely sunset together. Earlier, Putin threatened force to split Ukraine into two states, the eastern half favoring Russia as it is.

Zimbabwe: President Robert Mugabe, refusing to concede defeat and seeking to buy time before a runoff, thus allowing his goons to intimidate the opposition forces, is once again going after white-owned farms in yet another incredibly stupid move that will lead to mass starvation. Rival Morgan Tsvangirai, who by all independent polls gained more than 50% of the vote, has called on South Africa, Britain and the United States to act to remove Mugabe. This should have been done in 2000.

Kenya: Violence erupted all over again as the opposition pulled out of talks with President Kibaki.

Morocco: Back in 2003, a series of bomb attacks in Casablanca claimed 45 lives. This week, nine of the convicted Islamists responsible for the attacks somehow escaped from Morocco's top security jail.

Chile: The nation is going through its worst drought in a century as La Nina does a number on it. Incredibly, northern Chile has not seen any rain since August. Just half an inch has fallen on Santiago over this time.

Venezuela: The government's TV regulator pulled "The Simpsons" from morning television because they deemed it "inappropriate?.with messages that go against the whole education of boys, girls and adolescents." So what did they replace it with? "Baywatch."

---

General David Petraeus noted the following during his congressional testimony this week.

"In closing, I want to comment briefly on those serving our nation in Iraq. We have asked a great deal of them and of their families, and they have made enormous sacrifices.

"My keen personal awareness of the strain on them and on the force as a whole has been an important factor in my recommendations.

"The Congress, the executive branch and our fellow citizens have done an enormous amount to support our troops and their loved ones. And all of us are grateful for that.

"Nothing means more to those in harm's way than the knowledge that their country appreciates their sacrifices and those of their families. Indeed, all Americans should take great pride in the men and women serving our nation in Iraq and in the courage, determination, resilience and initiative they demonstrate each and every day. It remains the greatest of honors to soldier with them."

God bless America.

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Gold closed at $927
Oil, $110.31

Returns for the week 4/7-4/11

Dow Jones -2.3% [12325]
S&P 500 -2.7% [1332]
S&P MidCap -1.9%
Russell 2000 -3.6%
Nasdaq -3.4% [2290]

Returns for the period 1/1/08-4/11/08

Dow Jones -7.1%
S&P 500 -9.2%
S&P MidCap -6.9%
Russell 2000 -10.2%
Nasdaq -13.7%

Bulls 37.5
Bears 38.4 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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