Educate Yourself

Week in Review
For the week 4/14/2008 - 4/18/2008
Brian Trumbore
President/Editor, StocksandNews.com

The stock market is once again attempting to decouple itself from the broader economy, which is how these things normally work in times of recession as a bottom in equities is hit generally months before the economic data is at its worst. This week stronger than expected earnings from the likes of IBM and Caterpillar, as well as positive news from Google (which is being tested for steroids as we speak following a stupendous $90 rise in its share price on Friday), plus short-covering in some of the financials when they didn't close their doors for good led to another strong rally, with the major indexes up over 4% across the board.

But let's see if we can simplify matters. The global economy is without a doubt slowing, everywhere. But there are some large multi-nationals, such as those listed above (and Google is now part of the equation with a majority of its revenues originating overseas), that are still benefiting from growth of any kind. This trend will end at some point in 2008, just as it did with General Electric.

There has not been one global forecast, or measurement of growth in a single major economy, that has revised figures upwards over the past six months, as best as I can remember, and only then would I be willing to adjust my own outlook. No doubt, however, some will say that as the pressures from the credit crunch are alleviated the worst is over, which is what all manner of Street executives have been saying recently, such as the heads of JPMorgan Chase, BlackRock, Citigroup and Lehman.

To which I reply, not so fast, pilgrim, because it's still all about the global real estate bubble. Needless to say I got a kick out of Monday's headline in the New York Times:

Over three years ago I was writing of this topic, including comments that were almost verbatim those of the Times piece.

"In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries?will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse."

I've written that is already the case in Spain, with Britain and Ireland to follow. But, again, it's the same story virtually everywhere in the world, and it's Mr. O'Leary's, Mr. Franco's, and Sir Nigel Clark's #1 asset, just as it is here.

Isn't it funny how with this week's positive news on a few fronts, the bulls conveniently ignored that little factoid our children have been learning in grade school these days?that the consumer, at least here in the U.S., represents 70% of our economy? Percentages around the world in this regard are also increasing, rapidly, thanks to the global, consumer-driven boom and the wealth effect that was fueled to a large extent by real estate.

It's also interesting to note that despite the legitimately positive news from Caterpillar on the capital spending front, especially for in the resource sector, and by extension many emerging markets, most surveys show capital spending is, as the Federal Reserve's own review of regional economic activity put it, slowing "markedly," with various Fed governors this week reaffirming that "downside risks to growth are significant."

But here you could argue that, well, Wall Street's honchos are telling you that the credit crunch is easing, yet the evidence remains otherwise, that banks continue to tighten when it comes to consumer and business lending. Heck, I'm not 'short' stocks and most of the few holdings I have are of the small cap variety so I, too, want the credit spigots reopened, but that's not happening anytime soon.

In specific news on the housing front, the median home price in the six-county Southern California market has now fallen 24% over a year ago to the lowest level in four years, $385,000, after peaking at $505,000, while foreclosures, nationwide, are up 57% year over year in March. Even JPMorgan's Jamie Dimon had to admit "real estate is getting worse." No bottom yet. A survey for the AP and AOL revealed that 60% of Americans said they would not buy a home next year, as a large number, 14%, are concerned they will miss a mortgage payment in the next six months.

No one should be surprised then that given all the above, nine in 10 in this country give the economy a negative rating, up 33% in a year, according to a poll this week by ABC News and the Washington Post. Those aren't the kind of figures that lead to an immediate increase in consumer confidence, and thus spending.

But wait?there's more! Like $115 oil and $2.95 gasoline futures, the latter translating to an average national price at the pump of around $3.60 shortly?$4.00 in many parts of the country. Inventories have been plunging, for a variety of reasons, and while I personally have been holding off on getting back into some old oil & gas favorites, waiting for a better entry point (stupidly, it would seem) since I see a nice little correction around the corner, there is no doubt the long-term fundamentals for oil in particular are bleak; as in every week seems to bring us a new story on a key producer nation whose production has peaked (thus the term 'peak oil'). This week we had two, Russia and Nigeria, both critical players, who now join the likes of Mexico and those generating their supplies from the North Sea. Massive amounts must be spent on exploration and development just to keep up with current supply levels and in many cases there just doesn't seem to be the political will to tackle the issue (including here in the U.S. and the reluctance to drill offshore or in ANWR, for example), or in the case of Big Oil, no apparent urgency to increase capital spending budgets in any big way from the likes of Exxon Mobil.

Finally, as I throw the whole kitchen sink at you, there is one other simple fact. Real wages (inflation-adjusted) around the world are getting crushed relative to some of our costs, particularly on the food and energy fronts. Regarding the former, there are aspects of the food crisis that are flat out nuts, such as in the case of skyrocketing prices for rice. I know there are legitimate supply issues due to drought in some parts of the world, and I know there is rising demand thanks to more and more people graduating from eating insects to rice (though this will reverse back), but especially in Asia there is simply a lot of hoarding and corruption as we've seen so often in history from time to time with a hot commodity. Black markets are thriving and some governments are scrambling to crack down, even as they are forced to limit or suspend exports to attempt to take care of their own today.

I would be very surprised not to see the price of rice plunge in the coming months. In the interim, though, Robert Zoellick, president of the World Bank, is calling for an additional $500 million in emergency food aid. Starvation is an issue in parts of the developing world. But at least there is one silver lining in the crisis, a reexamination of the biofuel debate. Corn can not be diverted for fuel and I hope you're personally not on the hook for a Midwestern ethanol plant that is half built. You may want to change your phone number because the bankers are going to be making some frantic calls over the coming year.

--By some measures this was the best week for U.S. equities since the start of the Iraq war five years ago. As noted above it was a combination of some key companies exceeding expectations as well as the banks and brokerage outfits not saying anything worse than expected. Some aspects of the rally were warranted, others not so. But then I've consistently maintained losses for the year in the market would be minimal despite the recession and suddenly the year to date losses in the major averages are just that, minimal, with the Dow Jones and S&P 500 now down my projected 3% to 5% for the entire year.

Rates soared on the expectation that the Federal Reserve may be nearing the end of the road in terms of rate cuts as it prepares to gather in two weeks. Traders now look for the Fed to lower the funds rate a quarter to 2.00% and then sit for awhile to monitor both the economy and the pace of inflation. Regarding the latter, the producer price index for March was up a whopping 1.1% and is now up a China-like 6.9% year over year. But we've been trained to look at the core reading, ex-food and energy, the stuff we use throughout the day unless we are on a hunger strike in a dark, dank prison, and here the core PPI was up only 0.2%. Similarly, the core CPI also came in at 0.2%.

[I'll discuss the debate over Libor next week. Some late information hit that I need to digest first.]

--China reported its economy grew 10.6% in the first quarter, though some question the legitimacy of the figure seeing as the crippling winter storms hit during this period and the impact had to be far worse than indicated. Inflation ran at an 8.3% clip in March, a slight decline from February's 8.7% pace.

[China's stock market is now off about 50% from its high set last fall. The government has tried to keep from interfering.]

--Delta and Northwest are merging, finally, to create the world's biggest airline, though just how many of the 89,000 combined employees will survive is but one of many issues facing management, the unions and regulators. A Continental/UAL or Continental/AMR alliance is next.

--Speaking of job losses, officials for London's financial sector are estimating 40,000 will lose their jobs there, while Wachovia announced it would slash 12% of its workforce; UBS, 10%; Merrill Lynch, perhaps up to 10%; and Citigroup, another 9,000, bringing the total here to somewhere between 13,000 and 15,000. AT&T also got into the act, announcing it would lay off 4,600.

--Merrill Lynch made an early attempt to hoodwink us all as to the extent of its writedowns when it released its earnings report. At first read it was merely $1.5 billion; then it jumped all the way up to $9 billion. Now the Street seems to have settled on a figure largely expected, $6.5 billion. So much for 'plain English,' as Wall Street is encouraged to use for the benefit of us peons. CEO John Thain insisted it doesn't need to issue more shares to boost capital, but that it might try to foist some 'preferred' securities on the masses, and/or institutions.

--Citigroup tried to paint a pretty picture with its dreadful earnings report on Friday, but consider it has now written off $35 billion in assets. Pretty serious money, as well as massive book value destruction.

--Wachovia was forced to raise $7 billion in fresh, free-range capital as it reported a loss of $393 million and further massive writedowns for its first quarter.

--Google Inc.'s first-quarter profit far surpassed expectations in both earnings and revenue as CEO Eric Schmidt said "It's clear we are well positioned for 2008 and beyond, regardless of the business environment we are surrounded by." Despite independent analysis to the contrary (see comScore), Google's U.S. paid clicks grew 20% in the first quarter from a year ago (which is nonetheless a significant deceleration), but international revenues rose sharply and now account for 51% of the total. It was also the 12th quarter of the 15 since Google went public that its performance has topped analyst expectations. In response shares in Google, which had peaked last Nov. 7 at $747, only to plummet to $412 this past March 17, soared back to $539, up from Thursday's close of $449.

--Boy, I've gotten a kick over the past year or so out of Las Vegas' apologists who insist it is recession proof. This week MGM Mirage announced it is laying off 440 management employees at both the property and corporate levels, with the bulk taking place in Vegas where it operates 10 Strip properties and is building the $8.4 billion CityCenter development. MGM, though, insisted the moves had nothing to do with a softening Vegas environment, but daily room rates are already down 20% from a year ago. Maybe the casinos get through the summer because of those who had longstanding plans, but by the fall there will be carnage all over the Strip, just as there is in neighboring housing developments. You don't have to be a card-counter to figure this one out.

--38% of Southern California homes sold in March had been foreclosed at some point in the prior year, up from 8% in March 2007, according to DataQuick Information Systems. [L.A. Times]

--For all the talk that the credit crisis may be winding down, Goldman Sachs was forced to accept just 65 cents on the dollar for almost $200 million in senior debt tied to Bain Capital's buyout of one of Europe's largest yachtmakers, going back to last June. Now, with doubts about the health of the yacht manufacturer as many of its prospective clients - bankers and hedge fund managers - have been hit by the credit crunch, Goldman is left holding the bag as it is forced to continue to sit on about $700 million more of the debt. [London Times / David P. ("the smartest toes in the room")]

--But the above isn't the only case of its kind. Citigroup is unable to market $5 billion in loans related to the financing of private-equity firm Terra Firma Capital Partners' purchase of music company EMI Group. Citigroup has a total of $43 billion in leveraged-buyout loans it's been stuck with since the global credit markets seized up.

--Credit-default swaps worldwide expanded to $62 trillion in notional value in 2007, rising a whopping 37 percent in the second half of 2007 from the earlier reported figure of $45 trillion. Now this figure can be deceiving because it doesn't really reflect the actual risks, but the Bank for International Settlements estimates the gross market value of all outstanding derivatives contracts to be $9.8 trillion; the amount owed to banks or investors if the contracts were liquidated. It's all about the counterparty risks in actuality.

--The FBI is investigating the subprime mortgage meltdown for potential financial crimes committed by hedge funds and private equity firms, with the FBI opening 19 separate criminal probes, including for accounting fraud and insider trading.

Separately, New York state's attorney general, Andrew Cuomo, launched an investigation into the auction-rate securities market, which collapsed last February, making it nearly impossible for some investors to gain access to funds that they had been told were invested in money market like instruments, yet another huge black eye for the Street.

--My friend Brad K., who is a big player in the steel pool business, notes that his supplier, ArcelorMittal, hiked prices 30%, which he in turn is forced to pass on to his clients. "There is no negotiation (on either side), take it or leave it." In 2007, industrywide in ground pool sales were off 20%.

--There was much talk of Institutional Investor's latest survey of hedge fund manager compensation which revealed the two top earners, John Paulson and George Soros, took home over $3 billion each in 2007. But if it's earned legally, there's not much you can do about it. To make it into the top 25 you needed to take home $360 million. Many of those at the top struck a gusher in betting against the housing industry and the accompanying mortgages and derivatives instruments attached to it.

--American Airlines lost $328 million in the first quarter as its fuel bill rose 45 percent over the year-ago quarter to $2.05 billion. Fares, conversely, were up just 5%; a significant hike but obviously not nearly enough to take care of the effects of $100 oil (and a like amount for jet fuel).

--Economist Robert Samuelson, Washington Post, on the politics surrounding free-trade agreements.

"(It's) politically convenient to oppose (a) trade agreement because the popular imagery is that trade destroys U.S. jobs. The loss of almost 4 million U.S. manufacturing jobs since 1998 seems easy to explain by cheap imports or the flight of plants to Mexico, China and other poorer countries. The truth is murkier: Although this has occurred, job losses also stem from greater efficiency (fewer workers producing more goods) and slumping domestic demand (for communications equipment and computers after the dot-com bust and for housing materials and vehicles now). Nor has falling factory employment crippled overall U.S. job creation.

"Look at the numbers. From 1998 to 2007, total non-farm payroll employment rose 12 million, and unemployment averaged only 4.9 percent - despite the 4 million lost factory jobs. In that period, U.S. manufacturing output rose 22 percent.

"No matter. Globalization and trade have become lightning rods for myriad grievances (job insecurity, wage inequality, eroding fringe benefits). But even if trade caused all the factory job loss, its impact is shifting. The dollar's dramatic depreciation (down an inflation-adjusted 20 percent since early 2003 against a basket of currencies) has enhanced the competitiveness of U.S. exports. Their growth now looms as a major source of job creation and economic expansion?.

"What matters for workers and manufacturers is not what politicians say. It's the consequences of what they do. On trade, many Democrats - and some Republicans, too - are fighting the last war."

--In just about two weeks' time, South Korea has identified 20 bird flu outbreaks, including six involving the deadly H5N1 strain.

--In announcing decent earnings for the first quarter, eBay also admitted its growth in active users was flat over year-ago levels.

--USA Today had a story on how air travel is slower than at any time in the past 20 years when considering time on the ground and congestion in the sky. For example, it used to take four hours and 37 minutes to fly from New York's JFK to Las Vegas. Today it's six hours and 10 minutes.

It's also interesting to note that the average airspeed is down to 342 mph from 358 mph in 1998. I'm driving if it gets down to 90.

--I continue to bemoan the fact you just can't get wild salmon these days and now Safeway, one of the largest supermarket chains, has restricted some purchases of farm-raised Chilean salmon over concerns with a virus that is killing millions of fish there, according to the New York Times. The virus doesn't pose a risk to humans, but it obviously impacts quality.

--In its annual estimates of the value of sports franchises, Forbes magazine pegs the New York Yankees' value at $1.306 billion. The Mets were second at $824 million and the Red Sox third at $816 million.

I have argued for years that while Iraq is the short-term focus, longer term, the Bush presidency will be judged as much on its success or failure in preventing North Korea and Iran from acquiring nuclear weapons. Well, it's already too late with regards to the former, and now we're edging closer and closer to a nuclear-armed Iran. The Wall Street Journal opined on Iran's ever-increasing influence in Iraq and what that foretells for the Big Picture:

"(Iran's) tactics will be familiar to anyone who has followed Iran's history in Lebanon, where Hizbullah, backed by Iran, is trying to bring down the elected government. Or in Gaza, where Iran's Revolutionary Guard trains and equips Hamas. 'Iran is pursuing, as it were, a 'Lebanonization strategy,' (Amb. Ryan) Crocker told Congress, 'using the same techniques they used in Lebanon, to co-opt elements of the local Shia community and use them as basically instruments of Iranian force.'

"This is remarkable enough - a mountain of evidence that Iran is waging a proxy war against U.S. troops and our allies in Iraq. Still more remarkable, and depressing, is that most of Washington has reacted with a collective 'So what?' It's as if it's understood that the mullahs can kill Americans and get away with it. Part of the fault here lies with the Bush Administration, which has previously spoken up about Iran only to shrink from doing anything about it.

"Meanwhile, last week Tehran announced it has begun installing another 6,000 centrifuges at its Natanz uranium enrichment complex. After five years of deferring to Europe and the United Nations to keep Iran from going nuclear, President Bush's diplomacy has reached an embarrassing dead end.

"So: Iran is contributing to the death of GIs, is arming our enemies in Iraq, and is proceeding to ignore the world by enriching uranium for a nuclear weapon. Is the Bush Administration merely going to slink out of office with that legacy?"

"The proxy war in Iraq is just one front in a much larger Iranian offensive. Israel has been fighting an on-and-off battle in the Gaza Strip with Hamas cadres that also have been trained and equipped by Iran's Revolutionary Guard. In Lebanon the Iranian-backed Hizbullah movement has paralyzed the government while rebuilding its own massive arsenal, which now includes tens of thousands of missiles. And (April 8), Iranian President Mahmoud Ahmadinejad announced another major acceleration in the country's nuclear program. He said 6,000 more centrifuges were being installed at an existing enrichment plant, which would give Iran the capacity to produce the core of a bomb in a matter of months.

"The urgency and momentum of the Bush administration's multilateral diplomatic campaign against Iran drained away following the release in December of a National Intelligence Estimate that misleadingly emphasized Iran's reported decision to put one part of its nuclear program on hold. Israel's efforts to stop Hamas's buildup in Gaza have so far failed, and a United Nations force in Lebanon has never made a serious effort to prevent Hizbullah from reconstituting the military capacity it lost in a 2006 fight with Israel. Negotiations with Iran are on hold: Tehran has repeatedly put off a fourth round of talks between U.S. and Iranian diplomats in Iraq?.

"(It is) inevitable that Iran's proxies in Iraq, Gaza and Lebanon will have to be countered in part by military force, while diplomatic and economic pressure aimed at stopping Tehran's nuclear program is stepped up. Some observers interpreted the report of Gen. Petraeus and Mr. Crocker as calculated to provide yet another excuse for keeping U.S. forces in Iraq. In fact, these two seasoned professionals were pointing at a growing menace that the Bush administration, and its successor, cannot afford to ignore."

In the case of North Korea, the White House is prepared to compromise to end the impasse over Pyongyang's refusal to comply with last December's agreement for it to fully disclose everything about its nuclear weapons program. For example, it won't have to give full details about the North's work in Syria that Israel disrupted in an airstrike last fall. Congressman Ed Royce (R-Ca.) said the Bush administration has shown "a consistent willingness to lower the bar with the North Koreans." This is pitiful.

"The revised nuclear deal hasn't been formally announced, and President Bush could still nix it. South Korea's new President, Lee Myung-bak, who will be in Washington (this weekend), has the moral standing to persuade Mr. Bush of the dangers here. Since taking office at the end of February, Mr. Lee has talked tough on the subject of North Korean accountability. Pyongyang has responded by testing short-range missiles that could reach the South and threatening to reduce Seoul to 'ashes.'

"Allowing the North to renege on its pledge to account fully for its nuclear programs is also a slap at Japan, another U.S. ally in range of Pyongyang's missiles. Tokyo has been pushing North Korea for information about the Japanese citizens it abducted in the 1970s and '80s. If Pyongyang doesn't have to account for its nuclear weapons or its uranium program, why would it feel inclined to account for a few Japanese nationals?

"In the waning days of the Bush administration, there seems to be an attitude that any deal with Pyongyang is better than no deal. But a 'disarmament' accord that gives the North a pass on proliferation and uranium is more than worthless. In addition to propping up Kim's regime, the administration is setting a standard for nonproliferation that is so low that it may well allow rogue regimes to keep their weapons while getting credit for giving them up. This is dangerous."

"Pyongyang's escape from accountability could break down international counter-proliferation efforts. What possible reason will Iran now have to be transparent about its nuclear activities? If North Korea can get away with deception and be rewarded, why should Iran not do the same? In Libya, Moammar Gadhafi will kick himself for giving up his nuclear weapons program in 2003. This deal with North Korea is troubling enough, but the worst news is still to come.

"Last fall, President Bush rejected the idea of giving North Korea a pass on uranium enrichment and proliferation. Now, in the waning days of his term, he seems poised to accept it. If he does, and if this deal proceeds, we can well and truly say: 'President Bush, you are no Ronald Reagan.'"

"All along the risk has been that North Korea would repeatedly extract economic and political favors from the United States without giving up its nuclear arsenal. The latest deal would seem to greatly increase the chance that that will be the legacy of Mr. Bush's diplomacy."

China: The furor over the Olympic torch relay has subsided a bit, while China and Taiwan opened up a formal dialogue as Taiwan's Vice President-elect Vincent Siew held an historic meeting with Chinese President Hu Jintao. Taipei has said the two sides should resume talks on the basis of a vague 1992 understanding that there is only one China but that each side has its own interpretation of it. Economic exchanges were stressed in the talks between the two, with direct flights between Taiwan and the mainland slated to be launched in July. There are, however, no direct talks slated between Taiwan's President-elect Ma and President Hu, as Ma maintains this isn't possible when 1,000 missiles still target his people.

Back to the torch relay, the torch arrived in Pakistan on Wednesday, where an official with the Pakistan Sports Board said "The route has been curtailed because of the weather condition and overall security situation. It will now be confined to the stadium."

I'm sorry, but this is comical. Why the heck even bother?! But on the larger issue of whether or not President Bush should attend the opening ceremonies, commentator George Will said Bush should stay home for the entire Games, while Newsweek's Fareed Zakaria wrote that while China's "handling of the protests in Tibet is disgraceful?humiliating the entire country over it would make matters worse." I agree with Zakaria.

Iraq: Moqtada Sadr, responding to Defense Secretary Robert Gates' call for Sadr to become part of the political process, ungraciously said the U.S. will always be his enemy "till the last drop of blood. I have no enemy but you. You are the occupier." Sadr, who many say is flat out unstable, is particularly upset these days over the recent killing of one of his relatives, a key figure in Sadr's movement.

And following the congressional appearances of Gen. Petraeus and Amb. Crocker, a survey by ABC News/Washington Post finds that six in 10 now say the war is not integral to the success of U.S. anti-terrorism efforts, a new high. [Not a good sign for John McCain's candidacy, incidentally.]

Israel: Three Israeli troops died in a Hamas ambush, followed by Israeli strikes in Gaza that killed at least 18, including some children, and the Jerusalem Post reported that following President Bush's planned visit in mid-May, Israel will launch a large-scale incursion to "clean Gaza out." I wrote a few weeks ago, though, of internal reports, via Defense News, that the Israeli military knows any such move would entail large casualties as Hamas' forces are far better organized and equipped than before.

So is it any wonder then that Israeli leaders snubbed former U.S. president Jimmy Carter, as he traveled the region, talking to Hamas' leaders, including chief Khaled Mashaal, in exile in Damascus?

"Mr. Carter justifies his meetings with familiar arguments about the value of dialogue with enemies. But he misses the point. Contacts between enemies can be useful: Israel is legendary for such negotiations, and even now it is engaged in back-channel bargaining with Hamas through Egypt. But it is one thing to communicate pragmatically, and quite another to publicly and unconditionally grant recognition and political sanction to a leader or a group that advocates terrorism, mass murder or the extinction of another state. That is what Mr. Carter is doing to lending what is left of his prestige to an avowed terrorist such as Khaled Meshaal."

"Say what you will about Jimmy Carter, he has a way of transforming moments of plodding gravitas into uproarious comedy. Remember that moment during the 1980 Democratic convention when Carter stood up, and in a phrase paying tribute to Hubert Humphrey, instead praised 'Hubert Horatio Hornblower,' confusing the late vice president with the character from the C.S. Forester novels?

"As Carter prepares to meet with a senior Hamas leader, Khaled Meshaal, in Damascus, the former American president again risks attempting to say one thing, only to blunder into another?.

"For one thing, negotiating with Hamas would effectively undermine the authority and credibility of Palestinian President Mahmoud Abbas and the Palestine Liberation Organization - together, the paramount representatives of the Palestinian people?.

"A second consequence of talking up Hamas, Meshaal knows, is that it would insert Iran and Syria squarely into the Palestinian track?.Whoever ends up speaking on Hamas' behalf, Tehran and Damascus could only gain from a dialogue with the movement?.

"(If) Hamas is willing to discuss peace, then the movement has to first demonstrate this before anyone seriously considers overhauling the Palestinian-Israeli track. That shouldn't be difficult, even if nothing shows that Hamas is contemplating peace with Israel, while everything about the movement's behavior and rhetoric says the contrary.

"That's why Jimmy Carter is on a fool's errand, complicating an already complicated situation. It's often said that Carter has been a better ex-president than president. That's no compliment, so ghastly was his tenancy of the White House - the Camp David accords notwithstanding. Peace may be a long way away between Palestinians and Israelis, but Carter won't speed things up any by turning into Meshaal's patsy."

Russia: Georgia accused the Kremlin of trying to annex the breakaway republics of Abkhazia and South Ossetia, as Russia said it would intensify cooperation with the two. Georgian President Mikhail Saakashvili responded, "We demand Russia revise all decisions which violate Georgia's sovereignty." NATO's secretary general supported Saakashvili in calling for Russia to back off.

Of course none of this would happen without the approval of Vladimir Putin, who is still president for another few weeks. On Tuesday, Putin also solidified his future power by agreeing to lead United Russia as new party chairman. Putin will assume this role on May 7, the day Dmitry Medvedev ascends to the presidency.

Understand that United Russia controls 315 of 450 seats in the Duma and thus parliament, through Putin's edicts, can check Medvedev should the latter become a little too independent for Putin's liking. For his part, Medvedev can dismiss the prime minister, which is what Putin will also become, but the Duma must endorse a successor, thus no-go on that option for Dmitry. So in case you harbored doubts as to who will really be running the country, it's Putin.

Meanwhile, there is a bit of a scandal involving Vlad. It seems the 56-year-old has walked out on his 50-year-old wife, Ludmilla, and may be preparing to marry 24-year-old gymnast, Alina Kabaeva, who is now a member of parliament. Putin evidently left his wife two months ago. But on Friday, Putin himself denied the reports.

Zimbabwe: As Robert Mugabe refuses to accept the results of the presidential vote that should have tossed him from power, and as Mugabe unleashes his goons, intimidating the people into submission, another figure has emerged as a culprit in the disaster that is this nation, South African President Thabo Mbeki, the absolutely pitiful leader who refuses to acknowledge any kind of crisis in his neighbor's affairs. The rest of Mbeki's government, though, has labeled the situation "dire," as Zimbabwean opposition leader Morgan Tsvangirai called for Mbeki's removal. And now you have an issue in South Africa where dock workers there are refusing to offload a shipment of arms from China for Zimbabwe.

But it was Mugabe who held center stage on Friday as he denounced Tsvangirai and Britain in his first speech since the elections.

Kenya: A new power-sharing cabinet has been formed with a total of 40 posts evenly split between the two leading parties.

Italy: Billionaire Silvio Berlusconi has returned to power as prime minister in Italy's 5,678th government since the end of World War II, each lasting about four days. Italy is struggling on all fronts in terms of its economy, its identity and its lessening influence on events in Europe. You can't even trust the cheese here these days as a few weeks ago the Mafia poisoned some fields cows grazed on, the milk from same then being used in the making of mozzarella.

Britain: Prime Minister Gordon Brown, beset by poll ratings that are far worse than President Bush's, if you can imagine, sought refuge in Washington this week. Brown's collapse in his ratings is worse than Neville Chamberlain's in 1940 following Hitler's invasion of Norway.

"A stranger approached me at St. Pancras station on Thursday, her tone more inquisitive than hostile. 'Why do you hate Gordon Brown so much? Your ferocity seems personal.' ?.

"I don't think it matters that he's dour. I blush for him at advisers' ham-fisted attempts to make him look cuddlier. The British are fair-minded people and know very well that to be shy - even dull - does not make a man worthless. We do not expect every leader to be a prancing show pony, and after the last one we were ready for still waters that ran deep. 'Not flash, just Gordon' resonated?.

"No, for all I care, Mr. Brown can be a bean-counting, flak- ducking, procrastinating, tunnel-visioned, trainspotting monster. These are human qualities. I like human qualities. It's vacuums I despise. What is unforgivable is the empty space in Mr. Brown's head where an idea ought to be. One big idea, one bold, brave, all-consuming purpose, one gripping sense of political direction, would outweigh all the carping criticisms we may have of Brown the man?.

"Not once in the past decade have I heard a media colleague explain with any force or clarity what the Brown vision for change amounted to; hardly ever, however, did I hear a senior colleague seriously question that he had one?.

"Speeches are made and columns written urging the wizard to hurry up and show us his magic. But the wizard hasn't got any magic. Poor wand-less Mr. Brown isn't concealing or delaying his abracadabra moment. There's nothing there: nothing to get cracking with, nothing to communicate, nothing to explain.

"I think his premiership is disintegrating. With no belief in the human at its center I doubt the disintegration can be halted or reversed. I think this will become plain by autumn. One way or another, and very possibly before the next election, I think Mr. Brown will go."

Mexico: The New York Times reported a turf war among drug cartels in the border town of Ciudad Juarez (across from El Paso) has claimed a staggering 210 lives in the first three months of the year, twice the rate of last year.

New Zealand: This nation is in a state of shock over a bizarre tragedy that claimed the lives of six teenagers and a teacher who were hiking in the Tongariro National Park when a river, swollen by heavy rains, suddenly rose to four times its normal levels in a narrow gorge within a half hour and there was no escape.

Dow Jones +4.3% [12849]
S&P 500 +4.3% [1390]
S&P MidCap +4.4%
Russell 2000 +4.8%
Nasdaq +4.9% [2402]

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