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04/09/2011

For the week 4/4-4/8

[Posted 7:00 AM ET]

Wall Street and Washington

I have to admit, folks. I’m really burned out from the past few years since the financial crisis hit. I yearn for those days of 12-14 page weekly wrap-ups but today there’s always something new and big that needs to be covered and given the proper treatment as I compile this running history of our times.

However…as I go to post, look who is back at Augusta entering round three of The Masters.

McIlroy -10
Day -8
Choi -7
Woods  -7

You don’t have to like him (I don’t), but should he be up there by late Saturday, heading into Sunday’s final round, the television ratings will be enormous.

Alas, also as I write, Republicans and Democrats averted a government shutdown. I’ll have more on this next time, as well as Congressman Paul Ryan’s plan for 2012 and beyond, but for now what is truly pathetic about our system is that it took Congress all this time to agree on a budget for the remainder of the fiscal-2011 year which is already six months old!

I love how people just by rote say “We are a great country.” No we aren’t. We have some outstanding people, like those serving in our armed forces, but for years now we have hardly been a great country. 

But before you get all over me for this statement, I’m staring at the world map in front of me and only a handful of prospects for greatness catch my eye. Perhaps Australia and New Zealand, though I’d need to give this far more thought. Some of the Scandinavian countries could qualify, but they’re so damn expensive. Canada is a contender. That’s about it.

I like to take each year as it comes in terms of forecasting but I’ve been giving 2012 a lot of thought the past few months and I want to get down for the record that we will have a market crash next year…a big one…30% or so over the span of just a few days. And it will all be because a switch will go off, around the world, that there is no way America is going to deal with its deficits. Everyone is thinking about it today, no doubt, but market reaction has been minimal [3.60% on the 10-year is hardly a reaction]

You may recall I wasn’t always this gloomy. At year end, just last December, after President Obama reached a compromise with Republicans on extending the Bush tax cuts and throwing in a payroll tax cut as a stimulus, I wrote the following on 1/1/11.

Looking at 2011, “I won’t be the least bit surprised if at some point in the first half in particular the market is up substantially owing to the stimulus. It would also be a real shot in the arm if the new Congress and President Obama got together on deficit reduction. Sending a message that both sides are serious, I commented the other week, could cause stocks to soar and I still believe this.”

Back in those heady days I stupidly thought our president would use the State of the Union to begin to educate the American people on the deficits and the exploding entitlement issues that threaten to bankrupt us. This was the time to do it, I thought, it being a non-election year, and if the financial markets thought Congress and the administration were serious there’d be every reason for the Street to rally big. The dollar would be rallying, too, as foreign capital flooded into the good old U.S. of A. ‘By jove, they’re beginning to get their act together,’ I assumed investors would muse.

Alas, that proved to be one helluva dream on my part. As for why the stock market is still rising with all the problems we face, including $112 oil and soaring commodity prices, it’s a fools game. I’ve been careful to say I didn’t expect a big down year, just 5% to 7% for equities, but today there remains zero…zero…reason for optimism. Be my guest. Play Fed Chairman Bernanke’s game of taking on more risk. I have my own ample equity investments but not one of the more substantial plays is in this country. I’m not a trader, and I’m looking long term, but be very careful, friends. We might skirt by this year, with smoke and mirrors, but we will pay the piper sooner than later.

So let me just touch on a few key issues of the day.

Chairman Bernanke, who none of us should forgive for ruining the lives of the elderly, the prime savers, in keeping interest rates at zero long after the true financial crisis had passed because he wants all of America to be investing in the stock market to build up a wealth effect, also said “inflation will be transitory” and that prices “will eventually stabilize.”

I’d be a hypocrite if I didn’t say I tend to agree with this. I have no opinion on gold or silver (I actually love silver going higher because it means more Web traffic for my article on the Hunt Brothers and the silver bubble), but on other commodities, save oil (which is high for geopolitical reasons), we are witnessing an incredible bubble. My bet is the CRB Index (of which I did an update for my “Wall Street History” column…check it out), which closed the week at 368, will still finish the year below the 12/31 close of 332. I see no reason to change my tune on that one. Why? Because I told you this last spike will indeed be the tipping point for the economy, demand will then fall, and many of the commodities in the CRB will absolutely collapse as the speculators are wrung out. In the meantime, while prices continue to rise I can look like a fool.

Of course commodities are also rising, including oil, because of our collapsing dollar and here the only thing saving stocks is that the decline has thus far been orderly.

The dollar is falling (just in time for a coming trip to France…thank you again, Chairman Bernanke…not!) because the European Central Bank has now raised its key lending rate for the first time since 2008 to combat inflation, while the Federal Reserve is perceived to be dithering and not facing reality on the price front. Additionally, the dollar is dropping because of our dismal fiscal situation as Obama works his magic and $trillions and $trillions suddenly appears on the wrong side of the ledger…the red side.

Why would any overseas investor take a chance on America these days given the fact we are heading to budget Armageddon?  [Congress’ latest move is encouraging, but I just don’t see the political courage to enact anything near like the Ryan plan of $6 trillion in spending cuts.]

Friday afternoon Federal Reserve Bank of Dallas President Richard Fisher said the central bank faces a “significant” risk of providing stimulus for too long and should weigh curtailing the final stages of QE2, the $600 billion bond-purchase plan that is to end in June, barring QE3.

“We at the Fed are near a tipping point. Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize operations in a timely way.”

Earlier in the week, speaking to how Bernanke has screwed savers, Fisher said:

“Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates. That state of affairs is not sustainable for a long period of time.”

At least someone in a position to do something about our sorry state gets it. It’s now up to Fisher to jack Bernanke up against a wall and get to him to understand that the funds rate should be 1.5% to 2.0%, not zero. Moving quickly to such a level would NOT kill prospective homebuyers as mortgage rates would rise far less than short-term rates. [Plus it’s not as if record low mortgage rates have helped the housing sector any as it is.] But it would rally the dollar, big time, and kill the commodities speculators, which in turn would kill this inflation issue of ours. Then again, I didn’t go to Princeton like the chairman did, so I apologize for wasting your time with my uneducated opinion.

Meanwhile, back to oil, thankfully there are some economists who understand that $112 oil is a killer. Mark Zandi of Moody’s Analytics said, “The surge in oil prices since the end of last year is already doing significant damage to the economy.” All you need to know is that the payroll tax cut has merely gone into the gas tank, while in a poll for AP-GfK, 2/3s of Americans say they expect rising gasoline prices to cause hardship for them or their families in the next six months. It’s also going to do a number on many a corporation and their profit margins.

And not for nothing, but why is it the financial press seems loath to talk about how just about every economist on the planet is rapidly scaling back their growth forecasts for the U.S.? We’re talking a standard yearend projection for the first quarter of 2011 of 3.0% is now 2.0% or less. The first half was supposed to be the high growth period for the year. I based my own forecast on a big slowdown in the second half that would hit earnings estimates as part of my projection for a down year on the Street in terms of equities.

Today, there is no reason to believe the Middle East, for example, will suddenly break out in song, linking arms from North Africa to Iran while doing a Coke commercial. I see it getting worse. Why?

When I took a look at 2011 end of last year, my focus, aside from China, was on two countries, Pakistan and Lebanon. They’ve been my two real hot spots to watch for some time now, Iran being an extension of Lebanon through Hizbullah.

So guess what? I’m not totally surprised stocks have continued to rise despite all the turmoil in North Africa and the Middle East because my two picks to upset the apple cart haven’t rolled over yet.

But they will…oh yeah…they will. And while Lebanon and Pakistan are not energy exporters, the chaos will just engender more uncertainty. 

The Islamists continue to make head way in Pakistan and there is zero reason to believe the military can prevent a decapitating strike on the heads of state there at some point, while in Lebanon, once the Special Tribunal for Lebanon formally issues indictments against members of Hizbullah, and possibly Syrian regime elements, for the 2005 assassination of Rafik Hariri, it’s Katy bar the door.

Before I wrap up this segment, though, just a few thoughts on Europe and Japan. In euro-land, Portugal’s caretaker government cried ‘uncle’ and went running to the EU (and by extension the International Monetary Fund) for a bailout, somewhere in the neighborhood of $105 to $125 billion by most estimates, prompting Church Lady to say, “Now isn’t that special.”

Greece, Ireland and Portugal…Constantine, Seamus, and Ricardo (as opposed to Manny, Moe and Jack). All told they will be in hoc to the EU et al for about $250 billion, once the EU approves Portugal’s bailout plan. Of course this is $250 billion in loans piled on top of $hundreds of billions in existing debt. And at interest rates the three countries can’t afford. Plus, they have to grovel and beg for their loans but to receive them, Germany and France, the two leaders of the EU and the European Central Bank, demand that Greece, Ireland and Portugal fire all the remaining civil servants! Plus, the three have to levy all kinds of new taxes! Plus, the ECB just hiked interest rates so all the homeowners with variable rate mortgages, bigger in Europe than in the U.S., get screwed yet again!

Why it’s the perfect recipe for growth, which is what they need to get out of their mess, right?

Of course not. But this is what the fringe euro-17 members face. It’s nuts.

There was a simple solution. Default. Pay senior bondholders 70 cents on the dollar and start over. Happens all the time to people and corporations around the world. But, as I’ve discussed ad nauseum in these pages it couldn’t happen in Europe because you’d be defaulting on the big European banks and then we’d learn these emperors of finance have no clothes, and we’d have the bank run to end all bank runs, as I mentioned the other day.

And I might as well repeat some of my other points since the crisis first hit. Like it’s going to be real good when Germany and France have new Socialist leaders in 2012. Right? Wrong. Hell, even Portugal’s Socialist now ex-prime minister couldn’t get his austerity program through parliament and Mr. Socrates was booted out. What’s funny is that for its bailout funds, now Portugal is going to have to enact even more of an austerity budget than what was turned down before. Isn’t that just super?! Oh, and remember this about $125 oil, which is what Europeans are paying. Try the equivalent of $9.00+ per gallon, which is the minimum all their drivers shell out these days, thanks to huge taxes tacked on at the pump. That’s real conducive to growth too, right sports fans?

So is it any wonder yours truly remains negative on the continent’s prospects, let alone the fact I didn’t see one economist this week, amid the happy talk that ‘Europe is going to pull out of this’ mention that when you have tens of millions of dissatisfied workers and pensioners, who have now either lost their jobs, are about to, or will at a minimum have their pensions slashed, you’ll have trouble in the streets, which is in its own way not conducive to economic growth? In fact it’s downright depressing. But I’ll issue my own report card on this last bit by end of May.

And finally there’s Japan. Last week on page one I wrote:

“This country will see another severe earthquake this year.”

Thursday’s 7.1 was indeed the biggest aftershock since the March 11 disaster. But this isn’t what I was predicting. I continued last week, “Obviously, another 7.5 or greater in a different part of the country has the potential to bring this nation to its knees, as if it isn’t already.”

[But I also can’t help but comment on the anchor on CNBC who upon hearing Thursday’s quake was reduced from a 7.4 to 7.1, harrumphed (he’s a big blowhard), ‘Well, understand that the 9.0 quake was technically over 700 times stronger than this 7.1.’ And why would this upset me so? Because you all know by now, and Mark Haines should have known, that it’s not always the number, it’s the depth of the quake that really matters. That was part of the issue on March 11 in terms of generating the tsunami. I would like Mr. Haines to go to Christchurch, New Zealand and ask those good folks how strong the quake was that destroyed their beautiful city? Try 6.3, Mr. Haines! Christchurch lost nearly 200 people and its offices tumbled down despite having the strictest building codes because the quake was shallow! This kind of irresponsible reporting needs to be condemned. Japan’s quake on Thursday was in the dead of night, there were few reporters on the scene, and he’s spouting off in his declarative, know-nothing fashion.]

I’ve been hard on those who are painting far too rosy a picture when it comes to Japan’s future. We all want to see the best. But then there is reality. So what did the Japanese government say on Friday? 

“Japan’s economy is suddenly in a severe condition due to the effects of the earthquake,” the Cabinet Office statement read. The government is asking major companies to cut electricity use in the peak summer months by a quarter, just as I’ve been writing.

I also wrote a week after the disaster, WIR 3/19:

“The tsunami contaminated vast stretches of land, mile after mile after mile, leaving it totally uninhabitable….

“Imagine what the 30-foot high wall of water was displacing; the oil, gasoline from cars and service stations, chemicals, waste and debris that will never be effectively cleaned up in our remaining lifetime.”

April 6 / Wall Street Journal

“As much of Japan worries about nuclear radiation, residents along its northeastern coast are confronting a different environmental disaster: the wide-scale destruction and contamination of farms and other land from salt water, chemicals and other detritus and toxins washed in with last month’s tsunami….

“The March 11 earthquake and waves…also spread debris and chemicals across hundreds of miles of the country’s best farmland, fishing areas and tourist zones. Government officials say they have only just started to survey the environmental damage, but early indications are that some ecosystems and the industries that depend on them could take years to rebound….

“One expert, Kyoto University associate professor Hagahisa Hirayama, estimated there could be more than 14 million tons of waste left over in Miyagi prefecture.”

Sorry, the above was self-serving, but just showing you how three weeks earlier you already had this story, which even now most people don’t get the severity of. It’s Love Canal times a million.

But here’s something I didn’t know, courtesy of the Los Angeles Times’ Julie Makinen and Ralph Vartabedian. [The L.A. Times is an outstanding newspaper…I get a kick out of some on both sides of the political aisle who don’t understand a paper is more than the editorial page.]

When it comes to Fukushima, officials estimate they have already accumulated 15 million gallons of highly radioactive water. “Hundreds of thousands of gallons are being added every day as the plant’s operator, the Tokyo Electric Power Co., continues to feed coolant into the leaky structures.”

So the Times’ compared the task faced by the operators of the Fukushima plant to that of the Hanford Nuclear Reservation in Washington state that is being decommissioned by the Department of Energy, eight reactors in all. Guess how much money it costs to process “about 58 million gallons of radioactive sludge now in leaky underground tanks” there? Try $100 billion to $130 billion. 

“But unlike Fukushima Daiichi, none of the Hanford reactors melted down and virtually all of the site is accessible to workers without risking exposure to dangerous levels of radioactivity.”

Unbelievable. Thank you Ms. Makinen and Mr. Vartabedian for bringing this aspect to our attention. So next time you see someone harrumphing that the worst is over at Fukushima and one day life will return to normal along the coast there, throw this in their face.

---

Libya: This is a total disaster. NATO has bombed the rebels twice in one week, killing 15, there’s a rift among the rebels themselves, at least one of the oil facilities was hit, the Libyan foreign minister who defected to Britain, Musa Kusa, was long implicated in a series of IRA bombings in both Britain and Northern Ireland, helping to ship Semtex to the terrorists, and the bottom line is there is no real plan for NATO and the United States other than further pissing off the decent Arabs who see the West as once again not keeping their word. Granted, when it comes to ‘keeping one’s word,’ such discussion is all relative when the topic is this region overall, but this is not NATO’s finest hour.

Editorial / Washington Post

“On Monday, the Obama administration achieved one of the president’s principal goals in Libya: withdrawing U.S. warplanes from the fight against Moammar Gaddafi. In his speech last week explaining his decision to support an air campaign, Mr. Obama said that after leading initial strikes, U.S. forces would transition to ‘a supporting role’; in practice, that has meant the grounding of AC-130 and A-10 Warthog planes that had been pounding the tanks, trucks and artillery of the Gaddafi forces.

“The unusual ceding of U.S. military leadership has served to reinforce Mr. Obama’s strategy of lowering America’s profile in the Middle East and sharing the burden of operations like Libya. The question is whether it is advancing more tangible U.S. aims in Libya – which according to Mr. Obama are protecting civilians.

“The early results are not encouraging….

“(The) dangers of the military stalemate for the United States increase with each day it lasts. The greater disorder in Libya, the greater the chance that extremist forces, including al-Qaeda, will push aside the pro-Western figures who now lead the opposition. Secretary of State Hillary Rodham Clinton said a month ago that ‘one of our biggest concerns is Libya descending into chaos and becoming a giant Somalia.’ And the longer the fighting continues, the more harm will come to civilians.

“Mr. Obama said last week that because of his grounding of U.S. planes, ‘the risk and the cost of the operation…will be reduced significantly.’ That may be the result in the short term. But if the withholding of American resources enables Mr. Gaddafi’s survival in power, the long-term consequences will be the reverse of the president’s promise.”

Editorial / Daily Star [Lebanon]

“The outbreak of a mass uprising in Libya, back in February, contained all the elements of high drama. Today, the situation in the country is moving closer and closer to farce.

“Now, the Libyan rebels are outraged that NATO forces are unable to deal a final blow to the Gaddafi regime, despite the statements by the Western alliance, dutifully detailing the percentage by which Libyan strongman Moammar Gaddafi’s forces have lost their power to fight.

“The quibbling over who is able to strike where, and how effectively, is only the tip of the iceberg. The country is now descending into civil war. A regular army, irrespective of how one might term Gaddafi’s forces, remains well-equipped and ruthless….

“(The rebels) mistakenly hoped that NATO would quickly help tip the balance and allow them to easily resist the onslaught of Gaddafi’s forces.

“Now, the rebels are caught between a rock and a hard place, spending efforts at securing political recognition from Europe and elsewhere, while unsure of how the Western alliance is truly keen on ending the fighting quickly.

“With every passing day, the body count in Libya is rising. And with every day, the damage to Libya’s economic infrastructure, and particularly its oil sector, is rising as well….

“The conflict might end in a de facto partitioning of the country into rival spheres, with the groundwork already laid in the form of tribal divisions. This will create, instead of the announced hope for a prosperous Libya, two deprived countries….

“(Western) powers cited a host of principles, such as human rights and international law, in justifying their original course of action. But their dithering over recent days has soured public opinion in this region over what is taking place, as people suspect that in the end, deals will be struck to ensure that Western oil interests emerge as the real winner.

“A job of this magnitude, left half-done, will not only be useless, but disastrous as well.”

Syria: President Assad made some pitiful concessions to Islamist opponents, though one concerned teachers who can now wear the niqab – the full Islamic veil that reveals only a woman’s eyes, which would be more than creepy if I were a little second-grader.

“Mrs. Muslafa? Why don’t we ever get to see your face?”

But Assad was also forced by the Islamists to close the country’s only casino. Noooo!

More importantly, another mass protest in the city of Deraa resulted in another 32 reportedly being gunned down. There is no exact toll for the past three weeks of demonstrations against the Assad regime but it would appear to be 200+. So much for President Obama’s policy of engagement.

Egypt: There is some potential good news here…really. While Islamists are eager to exploit Egypt’s new freedoms, and while the Muslim Brotherhood and other such groups appear destined to do well in the parliamentary elections now slated for September, a U.N.-sponsored poll shows that Egypt’s former Foreign Minister Amr Moussa leads the field of likely presidential contenders. That would be encouraging. And while 38% have a favorable opinion of the Brotherhood, 50% had a positive view of the secular Wafd Party. 63% also favor keeping Egypt’s peace treaty with Israel.

But Moussa has not always been a moderate. As the Wall Street Journal pointed out, an Egyptian pop song in 2000, at the end of his tenure as foreign minister, was titled “I Hate Israel, I Love Amr Moussa.” Not exactly the Beatles’ “I Want To Hold Your Hand.”

And then to shatter your thoughts of happy time in Cairo, you have the Salafis, the ultraconservative Islamists who are close to Saudi Arabia’s Wahhabis and their radical interpretation of Islam. The Salafis have shunned politics before, but are now planning to set up a party. If they join hands with the Brotherhood, a distinct possibility, look out. Consider that a recent rumor the Salafis were going to attack women who didn’t wear the headscarf at Assiut University, a school with 75,000 students, prompted women to stay away, according to a story I saw in the Associated Press.

So forget the first line of the above…wait 24 hours…wait ‘til September to see how the election shakes out (and first off, whether it is a clean one regardless of who gets the most votes). Egypt is indeed the key to the entire region’s security. Israel needs peace with its neighbor in the worst way. Should Egypt flip, and Syria and Iran (and thus Hizbullah) stay in the evil camp, Israel’s very existence is at serious, immediate risk.

Iran: A leading dissident group claims they have identified a secret facility that is churning out centrifuges for the Natanz plant that is enriching uranium. The turmoil in the region has been a huge positive for the mullahs as western focus is turned elsewhere.

Saudi Arabia: Defense Secretary Gates met with Saudi King Abdullah as part of Gates’ farewell tour (that would be a neat jacket…worn among select company) and Abdullah expressed how upset he is with U.S. policy in the region. But it’s also all about the Saudis being a bulwark against Iran.

Martin Indyk, former ambassador and expert on the Middle East, had the following thoughts on Saudi King Abdullah, now 87, in the Washington Post.

“Abdullah, this Sunni monarch of monarchs, custodian of the holy mosques of Mecca and Medina, can see the flames of instability and turmoil licking at all his borders. In the south, Yemen is imploding, to the advantage of his al-Qaeda enemies. In the east, Bahrain’s Shiite majority has been in such a state of revolt that Abdullah has already sent armed forces to prevent Iran from establishing a ‘cat’s paw’ on the Sunni Arab side of the Persian Gulf. In the north, Abdullah see’s Iraq’s Shiite-dominated government as nothing more than a front for the hated Persians. In the west, a Palestinian majority is demanding that the Hashemite king of Jordan become a constitutional monarch. Meanwhile, Egypt’s Hosni Mubarak, that other Sunni pillar of regional stability, has already been overthrown.

“Historically, in times of trouble, Saudi kings have depended on American presidents to guarantee their external security. But at this moment of crisis, Abdullah views President Obama as a threat to his internal security. He fears that in the event of a widespread revolt, Obama will demand that he leave office, just as he did to Mubarak, that other longtime friend of the United States. Consequently, Abdullah is reportedly making arrangements for Pakistani troops to enter his kingdom should the need to suppress popular demonstrations arise.” [Ed. I had never heard this one before.]

Indyk is urging President Obama to reach a new pact with Abdullah, whereby the king puts forward a plan for constitutional reform in return for a new security safety net. While Obama shows little signs of having an appetite for getting involved in real power politics at this moment, as Indyk puts it, “It’s not just Abdullah’s survival that is at stake. A revolt in Saudi Arabia could sink his presidency.”

Lebanon: Caretaker Prime Minister Saad Hariri (this nation moves pathetically slow in forming new governments) slammed Iran for its “flagrant interference” in the internal affairs of Lebanon and Arab Gulf states, in yet another show of courage from the leader who just months ago was viewed as kind of a wimp by yours truly, or perhaps more appropriately, I didn’t think Hariri had a desire to remain in the spotlight when he can choose the beach to spend the rest of his days on.

Since the collapse of his government in January, Hariri has launched one broadside after another against Hizbullah and its arsenal, demanding the group place its weapons under state control.

So Hariri this week vowed not to let Lebanon become an Iranian protectorate, with Hizbullah calling Hariri a puppet of the U.S.

But Hariri, in walking his tightrope in this incredibly fractured country, also blamed Israel for being “the largest investor in regional chaos and in causing violence and unrest in different directions.”

Israel: At least 14 Palestinians have been killed the past few days after Israel was targeted with mortar shells and a school bus nearly took a direct hit. Incredibly, Hamas wants to call an Arab League meeting to get Israel to stop retaliating. Unfortunately, Israel always hits some civilians in their retaliatory strikes, which makes for good propaganda and the cycle of violence is never ending. Of course in this latest round of tit-for-tat, Israel is well within their rights. I just wish they would stop with the settlements, but fat chance of that happening. And so we move on.

Yemen: The White House is trying to ease President Saleh out, a la Mubarak, but the administration wants counterterrorism operations in Yemen to continue, which is laughable as Al-Qaeda in the Arabian Peninsula gets stronger and stronger with this new safe haven of theirs.

Street Bytes

--The week got off to a solid start with Texas Instruments’ acquisition of National Semiconductor for $6.5 billion, a 78% premium to National Semi’s closing price, and later March same-store sales for retailers were better than expected, though Kohl’s were down 6.5% and Target’s 5.5%. But rising oil prices and uncertainty over the budget shutdown helped lead to a flat market in the end with the Dow Jones adding all of four points to 12380, while the S&P 500 and Nasdaq were each off 0.3%.

First quarter earnings start coming out this week and the Street awaits any news on margins and the ability, or inability of Corporate America to pass on rising commodity costs.

--U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.81% 10-yr. 3.58% 30-yr. 4.64%

With the rise in commodity prices, including oil, the bond vigilantes demanded more of an inflation premium on the long end of the curve so the 10-year saw its yield rise 14 basis points.

--The average stock mutual fund rose 6% in the first quarter of 2011, the best Q1 performance since 2006. Small-cap growth funds topped the general equity list at 9.4%, according to Lipper, while natural resources funds gained 13.7%.

--Bloomberg Businessweek reported on the top 10 underfunded state and city pension systems. For example, California has the largest gross pension shortfall - $92.7 billion – but has enough money to cover 70% of its pension obligations and is not in the top 10.

West Virginia is worst, just 43% funded with a pension deficit of $5.3 billion, followed by Illinois (51%), Connecticut (53%), Kentucky (54%) and Louisiana (56%).

The three worst cities are Philadelphia (just 47% funded), Chicago (52%), and Seattle (57%).

--Wells Fargo & Co., now the largest U.S. home lender following their merger with Wachovia, cut 1,900 employees from its mortgage unit as lending slows. The employees were given 60 days notice on March 23. Most of the original assignments were short-term in nature.

--Many Las Vegas investors are buying homes for all cash and then renting them. As reported by USA TODAY and Zillow.com, homes purchased for a mere $60,000 can get $800 a month in rent, a super return. But in terms of the Vegas market overall, ‘flat is the new up.’

--Due to changing consumer habits and overbuilding during the boom, mall vacancies hit their highest level in at least 11 years in the first quarter, 9.1%. The figure for strip malls is higher.

Of course it doesn’t help when online retailing hit 12% during the holidays.

--Federal authorities arrested two, a corporate finance attorney who worked for some of America’s most prestigious law firms, and a Wall Street trader in a brazen 17-year insider trading case that netted at least $32 million. A middleman has yet to be charged. Matthew Kluger, a Washington, D.C. attorney, realized he could glean information on pending merger deals by searching the firms’ computer systems for related documents, but he was careful not to open the docs, only scanning the titles, looking for clues. Kluger then worked with Garrett Bauer, a trader, with both using a middleman who supplied disposable cellphones, thinking their conversations couldn’t be traced. But investigators in New Jersey ended up listening in anyway.

Bauer and Kluger had numerous bank accounts and allegedly had $hundreds of thousands of dollars in their possession at all times as they became paranoid their scheme would otherwise be found out.

--Chinese Premier Wen Jiabao admitted there were serious problems in the management of public finances and fighting corruption.

“Corruption is still a recurring problem in some fields, and some cases are so alarming that they have extremely bad implications….The root cause is that there isn’t a sound system in place and there’s a lack of enforcement of existing rules as well as insufficient supervision.”

--China raised interest rates a fourth time in its ongoing attempt to quell inflation, which is expected to hit 5% in March before backing off later in the year. China’s largest homebuilder announced sales are slowing sharply. The Asia Development Bank is nonetheless forecasting growth of 9.6% here for 2011. ADB has India’s GDP coming in at 8.3% vs. 8.6% last year.

--China shut down nearly half of its dairies after their licenses were revoked in an attempt to clean up the scandal-plagued sector. But there was a report on Friday that three children died as a result of drinking tainted milk this week.

--The SEC is looking into fraud at Chinese small caps, including in companies such as China Century Dragon Media, which reportedly sells advertising space and was just delisted from the New York Stock Exchange less than two months after its IPO. Or a Chinese mining company which may not have any actual mines (when I read this, old-timers, I immediately thought of Bre-X). None of this helps my own holding in China. I’ll have more to say on this next week after I have a meeting in New York on the topic.

--Colombia’s oil production is picking up, 100,000 barrels a day more just since August as production for March hit 884,000 barrels. This is good for the U.S. as Colombia ranks 10th among exporters of crude to America, averaging 365,000 barrels a day last year. That may be just a fraction of the 11.7 million barrels the U.S. imported in 2010, but exports to our refiners are increasing. [Granted it’s not the low-sulfur crude favored by us, but it will have to do.]

A big reason Colombia is picking up on the production front is because of much better security, as attacks by leftist guerrillas on pipelines and the power grid have come down from about 500 a year in the early 1990s to just 30. [Los Angeles Times] I took a very small position in a company just two weeks ago that has exposure to Colombia’s oil & gas sector (as well as Israel’s). I’m also kind of itching to go to Colombia…

--…For no small reason because the White House is close to agreement with Colombia on a free trade agreement, that still needs to be ratified by Congress. Colombia made improvements on the contentious issue of labor rules, but now some in Colombia are saying their government is going too far to appease Obama, who needs Big Labor to get re-elected.

--Interesting piece in the Wall Street Journal by Geeta Anand on India’s education system. We constantly hear talk of how they are churning out engineers and such, but the fact is very few of the graduates are actually qualified, or, importantly, can communicate effectively in English, as any of us who deal with call centers know. So many companies are now looking to the Philippines and Nicaragua for their outsourcing.

--BP was given permission by U.S. regulators to return to 10 existing wells and projects that were already underway in the Gulf of Mexico prior to last spring’s Macondo disaster that killed 11 and led to the worst oil spill in U.S. waters. In exchange for permission to return to drilling, BP agreed to give the government 24-hour access. All of BP’s Gulf wells are located in deep water. The company will not be allowed to drill any new exploration wells. Nonetheless it’s a huge positive for BP.

--The SEC intends to investigate past acquisitions by Berkshire Hathaway to see whether David Sokol held shares in other targeted companies before deals were announced, Sokol being forced to resign following his investment in Lubrizol that brought shame to Warren Buffett, who beyond his initial rush statement on the matter has now gone radio silent. But as Barron’s notes, Berkshire’s board may be losing its patience on Buffett’s reticence to name a successor. Some say Buffett could actually step down and name buddy Bill Gates as interim CEO while a successor is found. Now that would be interesting, though not necessarily good for Berkshire shareholders, I’d guess.

--Interesting blurb in the New York Post by Paul Tharp.

“Corporate titans, who have been waiting over a year to take delivery of their new Gulfstream 650 luxury jets, may have to wait another year as a result of the tragic crash during testing of one of the $60 million jets.

“The crash over the weekend, which occurred while the jet finished two straight hours of extreme takeoff and landing maneuvers in calm weather at an airfield in Roswell, New Mexico, claimed the lives of the four-member test-flight crew.”

The test was part of the yearlong certification process before the aircraft can be sold to the public and Gulfstream’s manufacturer, General Dynamics, already has orders for 200 of the new jet, $12 billion, including from the likes of Warren Buffett and Ralph Lauren. If a cause can be found, however, certification could nonetheless proceed quickly, so notes Paul Tharp, in talking to his source, but I kind of find this unbelievable.

--Speaking of airlines…the issue with Southwest and the 737 whose roof peeled off probably puts a halt to any expansion plans the carrier may have as it needs to focus on maintenance, it’s safe to say. It grounded all of its 737s while they underwent emergency inspections and found at least three with small cracks. Manufacturer Boeing conceded the cracks occurred about 50% earlier than they would have expected, after 30,000 takeoff and landing cycles, rather than 60,000. Not good.

--Meanwhile, in a performance survey of the 16 largest U.S. airlines (looking at items such as on-time arrivals and lost bags), low-cost carrier AirTran had the best overall rating, toppling previous leader Hawaiian Airlines. Regional carrier American Eagle ranked last.

Southwest held on to the top ranking for fewest customer complaints, while Delta had the worst rate.

Eighty percent of domestic flights arrived on time last year. The worst over the last 20 years was 2000’s low of 72.6%. Fewer bags were lost than ever in 2010.

--Ken S. passed along a Bloomberg story by Jeffrey Young on one of my favorite topics, infections and preventable illness in our nation’s hospitals. A study by Milliman Inc., found that “Hospitals and U.S. regulators fail to record at least 90 percent of patient injuries, infections and other safety issues.”

For example:

“Adverse events occurred during one-third of admissions at the hospitals, according to the researchers…(who) studied 795 patient records using the Cambridge, Massachusetts-based Institute for Healthcare Improvement’s Global Trigger Tool. The institute’s method involves reviews of patient charts by nurses, pharmacists and physicians….

“A six-year study of hospital admissions in North Carolina published in November in the New England Journal of Medicine found almost one in five patients were injured by their care.”

Milliman found that “Medical errors that caused harm to patients cost the U.S. $17.1 billion in 2008….

“The study identified about 564,000 injuries to patients admitted to U.S. hospitals and 1.8 million injuries to people using outpatient services.”

--Procter & Gamble sold its Pringles potato chip business to Diamond Foods, makers of nuts, for $1.5 billion, signaling P&G’s exit from the food sector. Pringles had sales of $1.4 billion last year. I can’t recall the last time I bought any, but it was probably the first year the product came out.

Separately, and having nothing to do with the above, if anyone wants any Girl Scout Thin Mints, I have boxes and boxes at home and if I don’t get rid of them, I’m going to gain about 20 pounds. Each Saturday when I go grocery shopping (after posting this column and doing my podcast), I get hit up by the mothers and their cute little daughters and as I walk into the A&P I say sternly, “I already bought 89 boxes last Saturday!” and then 15 minutes later walk out and buy another 70. 

--I missed this last time, but for the archives, Goldman Sachs awarded CEO Lloyd Blankfein some $18 million in cash and prizes in 2010, while his salary has been increased from $600,000 in 2010 to $2 million in 2011. $12.6 million of Blankfein’s comp is in restricted shares, which I’m sure doesn’t please Mrs. Blankfein. “Llooyyyyddd….why didn’t you get more cash?!”

Blankfein also received perks valued at $464,000, including $185,000 for use of a car. StocksandNews’ hidden microphone picked up the following conversation in an EXCLUSIVE.

“Good morning, Mr. Blankfein. Mighty fine day for a ride into the city!”

[Grunt…unintelligible…then, from a distance…. “Llooyyyddd…tell them you want more cash!”…grunt….]

--JPMorgan Chase CEO Jamie Dimon said the bank would pay for errors it made in processing foreclosure paperwork on defaulted home loans.

“Some of the mistakes were egregious, and they’re embarrassing,” he said. “We made a mistake, they were signing it based upon what they were told, not based upon checking the note file, checking the loan file. But the actual information in the affidavit was 99.5% accurate.”

C’mon. It was fraud! 

[Dimon’s pay package equated to about $23 million for 2010, including a $5 million cash bonus. Mrs. Dimon was most pleased, as were the children.]

--In another instance of private-equity gone bad, pizza and pasta chain Sbarro filed for Chapter 11, weighed down by debt tacked on with its purchase in 2007 by P/E firm MidOcean Partners. The company has more than 1,000 locations and said it would continue to operate as usual during the restructuring process. Yours truly has never eaten at one. Something about the look kind of grosses me out.

--But McDonald’s is hiring 50,000 full- and part-time workers as business improves and more of its restaurants opt to stay open 24 hours.

I went to my local McDonald’s for the first time in awhile to take advantage of their two fish fillet sandwiches for $3.00 offer and was startled to see a work crew that was all white, when for years it had been all Hispanic. That’s a commentary of some kind…on multi-levels, including, perhaps, immigration trends.

--The Hawaii Tourism Authority looks for Japanese travel to the state to decline between 30% and 45% each of the next three months for obvious reasons.

--In a study by the National Foundation for Credit Counseling, 33% of American adults say they have no rainy-day savings. [54% for African-Americans. 47% for Hispanics.]

--In a Gallup poll, 58% of Americans think U.S. nuclear plants are safe. I’ve changed my own attitude. I don’t believe they are…for one simple reason. Human error had everything to do with Fukushima and Chernobyl, and in case you haven’t noticed, there are some dumb humans living in our country as well. 

[In a separate poll by AP-GfK, more than 60% of Americans oppose building more nuclear power plants, up from 48% in November 2009, while 75% are only somewhat or not confident that the U.S. government is prepared to handle a nuclear emergency.]

--So as a result of the computer hacking into Epsilon, a data firm that stores customer names and email addresses for retailers and financial institutions, I, like all of you no doubt, am receiving all manner of emails from companies saying not to worry…no personal information has been compromised. But more often than not I’m thinking, ‘How did some of these companies get my address? I never thought I did any business with them.’ Yup, if you thought there was still some privacy in cyberworld, episodes such as this tell you otherwise. 

Foreign Affairs, part II

Pakistan: There are growing concerns that Lashkar-e-Taiba, perpetrators of the Mumbai terror assault in 2008 that killed 160, is spreading out to the likes Australia, Europe, East Asia and the United States, according to the U.S. and India, as well as British and French intelligence. Various experts believe LeT could launch attacks here in the states.

Meanwhile, you had your basic double suicide bomb attack outside a shrine in Punjab that killed 41. I see this was a “13th century (shrine) of Sufi saint Ahmed Sultan,” so I’m thinking I can’t imagine too many of the original bricks remain. Just guessing it’s been bombed about 800 times in 800 or so years, because that’s what they like to do.

Afghanistan: It really is amazing that a wacko pastor in Florida, Rev. Terry Jones, can burn a Koran and actually get recognized for this, not here, but in Afghanistan, land of the illiterate, and singlehandedly threaten any progress the United States has made in winning over the hearts and minds.

And you had the story in the Wall Street Journal titled “Al Qaeda Makes Afghan Comeback,” this as we’ve been told that only about 100 operatives existed in Afghanistan. Of course the whole point of the Afghan war, aside from taking out bin Laden, was to eliminate al-Qaeda’s camps, and convince the Taliban to break ties with them.

So we’re back to finding al-Qaeda in Afghanistan and hoping Pakistan helps us out with the Taliban in the frontiers of that nation and it’s almost ten years after 9/11 and essentially nothing has changed. We certainly haven’t won over any hearts and minds.

Iraq: Incredibly, Prime Minister Nouri al-Maliki still hasn’t appointed a defense minister or national security adviser as the United States prepares to leave by year end. Some Iraqis do not want to see us go, recognizing the tremendous vacuum it will create in a nation whose government is in disarray as it is. But Maliki doesn’t want to request for an extension because he doesn’t want to be seen as weak. So one thing is for sure in 2012. Iraq is as likely as any other country to dominate the headlines.

[I see just as I’m going to post that Defense Sec. Gates says we may indeed keep some troops in Iraq, but first Maliki has to ask.]

China: The United States is not happy with the growing number of disappearances and detentions of human rights activists after Ai Weiwei, a famous artist who helped design the Beijing Olympics’ Bird’s Nest Stadium, was taken away before boarding a flight to Hong Kong. Police then raided his Beijing studio. All of this action is a result of the unrest in the Middle East and North Africa and fears it could spread to China.

Ai is an outspoken critic of the government and he now joins Nobel Peace Prize honoree Liu Xiaobo in prison. Liu is serving an 11-year term for subversion.

For its part, Taiwan’s government issued a statement:

“The Mainland Affairs Council urges the Chinese side to immediately set Ai Weiwei free and make proper explanations of the incident.

“The Chinese people’s demands for freedom, democracy, human rights and reforms are on the rise and we urge the mainland authorities to face and respect that.”

Ai was due to hold a solo exhibition in Taiwan in November and was to have met with curators this past Wednesday in Taipei but obviously was unable to.

So why is he being held? Beijing said they were holding Ai for “suspected economic crimes,” at least confirmation, and an admission, they were holding him in the first place. No further details have been given. Police have 30 days to decide whether to charge him. According to one legal expert, though, the Chinese have already broken the law by not explaining Ai’s detention within 48 hours. [South China Morning Post]

North Korea: The head of U.S. forces in South Korea told a congressional hearing on Wednesday that Pyongyang could be preparing for “additional attacks and provocations.” Of course this isn’t a new theory but is part of the transfer of power between Kim Jong Il and his son, Kim Jong Un, who it is expected will be elevated to vice chairman of the all-powerful National Defense Commission at this week’s Supreme People’s Assembly, but, as I go to post, Kim Jong Un hasn’t been seen, nor is he on the list of new Cabinet members, signaling there is a little hitch or delay. It’s possible that Kim Jong Il just believes he is healthy enough to stay on himself and now isn’t the time to weaken his power base.

Venezuela: U.S. Southern Command head Gen. Douglas Fraser said on Tuesday that Iran’s growing relationship with Venezuela is a major concern. Your editor noted this back in about 2005. Fraser told a congressional committee:

“My concern…is the fact that there are flights between Iran and Venezuela on a weekly basis, and visas are not required for entrance into Venezuela or Bolivia or Nicaragua. So we don’t have a lot of visibility in who’s visiting and who isn’t, and that’s really where I see the concerns.”

I’ve also noted in the past that Hizbullah has a presence on the lawless border between Bolivia and Paraguay. Should the United States come to blows with Iran, no doubt various sleeper cells will become activated in our hemisphere. Jewish groups in Latin America have particular cause for concern.

Brazil: The nation was stunned when a 24-year-old man walked into his former Rio school and opened fire, killing 12 and wounding at least 18 others before taking his own life. The shooter left a suicide note.

Mexico: Police and soldiers surprised a gang that was setting fire to a shopping center in Acapulco and the resultant shootout left three dead. Last month there, 10 were killed when police stormed a nightclub. Ergo, if you’re on a game show and you win a trip to Acapulco, hold the host hostage and demand a trip to Bermuda.

And, you also had your basic discovery of 59 bodies in northern Mexico, near a site where a drug gang massacred 72 last summer.

Northern Ireland: In a bad sign that violence could be returning here, a 25-year-old policeman was killed by a car bomb by dissident IRA members.

The timing was intentional, with Queen Elizabeth II due to make the first visit by a British monarch to Dublin in a century, while Ulster voters go to the polls soon to elect a new Assembly.

As an editorial in the London Times stated:

“No one in the Catholic community wants to continue picking at old grievances; all are ready to embrace the opportunities of peace. But to do so, they must drive the killers from their midst.”

Haiti: Congratulations to Michel “Sweet Micky” Martelly, a former carnival singer, who won Haiti’s runoff election in a landslide. If approved, Mr. Martelly takes office on May 14. Par-tee!

Zimbabwe: The leaders of South Africa, Mozambique and Zambia criticized President Robert Mugabe at a regional conference for escalating violence in Zimbabwe, to which Mugabe essentially said ‘butt out.’ Someone drive a herd of elephants through Mugabe’s home so we can end this dark chapter once and for all.

Random Musings

--General David Petraeus is reportedly in line to take over the CIA by year end after he leaves his stint as top commander in Afghanistan this fall. Petraeus really wants to be Chairman of the Joint Chiefs of Staff, replacing Admiral Mike Mullen, but President Obama prefers General James Cartwright, who I have to admit I never heard of.

As for current CIA Director Leon Panetta, it seems he is now the frontrunner to replace Robert Gates, who is stepping down at defense sometime this summer.

One associate of General Petraeus told the London Times, “It appears they don’t want him as Chairman of the Joint Chiefs because he’s too well known, too celebrated, and would have influence beyond his position. It’s tragic.”

--An NBC News / Wall Street Journal survey of prospective Republican primary voters has Mitt Romney in the lead with 21%, but Donald Trump is tied with Mike Huckabee for second with 17%, followed by Newt Gingrich 11%, Sarah Palin 10%, Tim Pawlenty 6% and Michele Bachmann 5%. In other words, while I find Trump entertaining, I’m one Republican who looks at the above list and winces. Mitch Daniels didn’t even get 1%. Maybe I’ll just take a long trip somewhere between Nov. 2012 and Nov. 2016. They say Greenland is getting greener.

[As for Bachmann, she is quickly supplanting Palin as Tea Party favorite.]

--Democratic National Committee Chairman Tim Kaine is running for the U.S. Senate seat in Virginia being vacated by Democrat Jim Webb. Former senator George Allen is the current frontrunner for the Republican nomination. Taking Kaine’s place at the DNC is Rep. Debbie Wasserman Schultz of Florida in a move I don’t understand. She’s highly irritating.

--Meanwhile, President Obama officially kicked off his re-election campaign, one in which it is expected he will raise $1 billion. Obama shattered fundraising records when he raised $745 million in 2008, twice what John McCain collected. Obama has already asked more than 400 fundraisers to collect at least $350,000 each by year’s end.

--Historian/economist Niall Ferguson, author of the book “Civilization: The Rest and the West,” as well as an accompanying television series, talks about how the west came to dominate civilization for nearly 500 years. So in BBC History Magazine they ask Ferguson the question, “What changed that enabled the west to become so dominant?”

Ferguson: “Obviously there was a legacy of western civilization 1.0 – the Greeks and Romans. There was ancient learning in Greek and Latin that western civilization 2.0 was able to draw on during the Renaissance. It was a kind of launch pad for this story and it survived not least thanks to the Arabs.

“But there are these six killer applications – to use modern computer terminology – that differentiate the second western civilization from the first and they are the key to my book. Each of them is unique and each, for a while, the west monopolized.

“I start by talking about competition and fragmentation of both political and economic institutions. Second is the scientific revolution, which really did change the game and was a purely western phenomenon. It was also different from what the ancients had done in both its methods and in the scale of its achievements.

“Third is the idea of property rights as the basis for the rule of law and ultimately for politics. That was a hugely important idea and again it was new. Next is medicine, which doubled human life and that was a pretty big advantage. My fifth killer app is consumerism, or the consumer society. Finally there is the work ethic, the get out of bed at six, collapse into bed at midnight work ethic that I think was distinctively western for a time.

“Each of these things gave the west an advantage and ensured it became unbeatably superior to the rest. It was richer, smarter and better capable of understanding the natural world. It was better ruled, because basing government on representative institutions and private property rights really works. The west became healthier, better clothed and sheltered. Ultimately it also became much more efficient at working.”

As to why it’s taken 500 years for the rest of the world to finally start catching up to the west…

“With the exception of Japan it is very close to 500 years and Japan’s catch-up was disastrously mishandled in the sense that it produced the Second World War. We need to ask why the magic of industrialism was not embraced more readily by the likes of China and India.

“One argument is that there was a high level equilibrium trap in China. They’d figured out how to feed an enormous amount of people by growing rice, and they had a very carefully structured system that just worked. However this system turned out to be a victim of its own success because it removed the incentive for progress.”

North-western Europe, on the other hand, was conducive to innovation.

But are we now witnessing the death knell of western supremacy?

“Yes, although it may not be a death knell. It may be a ring tone. It’s not necessarily the end of the world that the most populous countries on earth escape from grinding poverty.

“China, the west’s main rival, now has all the killer apps except for one. It doesn’t have a political system anything like as representative or law based as the ones in the west. That might be a problem for them at some point.”

--I was reading a piece in the Washington Post on one of the few political figures I respect, Republican Sen. Richard Lugar of Indiana, and defense expert Lawrence Korb made the point of Lugar, “I think he is very concerned about overextension of the U.S. military.”

I read Army Times and Defense News each week and this is a topic that really jumps out at you. Our forces are incredibly overstretched, and our military personnel have never had the divorce rates, suicides and drug abuse that exist today, including Vietnam. It’s the prescription drug abuse that is so troubling, which of course helps lead to the other two problems.

During a dinner for a service organization I belong to this week this topic came up and along these lines, I’ll repeat just one more time that there are all kinds of good groups you can contribute to that help our troops.

The other day I gave another donation to a group in California I’ve become familiar with and mentioned before, thanks to reader Josh P. and friends of his like Becky R.

CAN People
c/o EMWD [Eastern Municipal Water District…but EMWD suffices]
PO Box 8300
Perris, CA 92572-8300

They put together care packages, including basics like toiletries. I’m sure there’s a group in your community. It would take you no more than 30 minutes to make a few calls and write a check, or help put packages together.

The point is, yes, our troops serving in Afghanistan in particular are stressed out. Put a smile on some of their faces. Make sure they know their country loves them. 

--Lots of goings on in the world of U.S. network television this week. Fox announced that Glenn Beck was transitioning off of his daily program. Just a few weeks ago I noted in this space that Fox’s ratings for folks like Beck were taking a beating beginning with the turmoil in North Africa and then Japan’s triple disasters as many viewers switched to CNN and MSNBC for hard news coverage. I have to admit I’ve watched more CNN myself these days. Some of the female anchors and reporters are more attractive than Fox’s blond brigade. [CNN’s male anchors, however, are insufferable save for Wolf. Wolf rocks.]

Anyway, NBC’s “Today” is going to lose Meredith Vieira this fall and Matt Lauer after his contract runs out Dec. 2012, so say sources. Ann Curry would likely replace Vieira, but when it comes to replacing Lauer, my money is on CNBC’s Carl Quintanilla, a likable sort. [He’s not on the list as yet, but he will be.]

And Larry King is returning to television, appearing in an infomercial for BreathGemz breath fresheners alongside his wife, Shawn Southwick (and hopefully not that bratty older son of theirs). Yup, Larry has officially lost it.

--What an embarrassment for New York City Mayor Michael Bloomberg. His choice as schools chancellor, Cathie Black, resigned after a whopping four months on the job. Black, the former Hearst Magazines chairman drew 17% approval ratings and non-stop protests from parents.   Bloomberg said, “I take full responsibility for the fact that this has not worked out.” To replace Ms. Black, Bloomberg has appointed a deputy mayor who once taught kindergarten, so, assuming Dennis Walcott gets approved, look for major nap time for the city’s kids. Personally, I like to take a quick nap after lunch during the school week, and a longer one on Saturdays.

--The European Union warned that the emergence of antibiotic-resistant infections has reached unprecedented levels. Each year in the EU over 25,000 people die of bacterial infections that are outsmarting the newest antibiotics. The World Health Organization says the situation is critical.

And this is gross. Cardiff University researchers “now say bacteria with this new genetic resistance to antibiotics have contaminated New Delhi’s drinking water supply, meaning millions of people there could be carriers.”

Yuck. Yet another reason to always travel with Coors Light, sports fans…made from Rocky Mountain spring water. Want more proof?

“650 million citizens (in India) do not have access to a flush toilet and even more probably do not have access to clean water,” the researchers warn in the journal Lancet Infectious Diseases. [BBC News]

--But there was some good potential news on the health front, this from researchers at Ohio State University that found preliminary data shows strawberries may help prevent esophageal cancer, which is the sixth most frequent cause of cancer death in the world. Researchers specifically used freeze-dried strawberries, which were able to significantly inhibit tumor development in rats.

As reported by the Wall Street Journal, Tong Chen, who headed up the study, said “the freeze-dried substance is about 10 times as concentrated as fresh strawberries, but suggested people could still benefit from eating whole strawberries on a daily basis.”

I’m screwed. I don’t like strawberries.

--Sign of the Apocalypse: Gloria James, mother of LeBron, was arrested by Miami Beach police after she reportedly assaulted a valet worker who was slow in delivering her car. 

--So a lot of experts picked the Boston Red Sox to win the World Series this year after making some big offseason moves that appeared to shore up the team, yet for the first time since 1945, Boston got off to a 0-6 start. In ’45, Boston had lost Ted Williams, Bobby Doerr, Dom DiMaggio and Johnny Pesky to military service and started 0-8 on their way to finishing 71-83. Alas, Boston won its home opener on Friday against the Yankees to go to 1-6. My Mets, after a 3-1 start, are back below .500 and I officially don’t care again.

--Finally, April 12 is the 150th anniversary of the start of the Civil War at Fort Sumter. My brother and I are heading down there this October for some history (and good food in Charleston).

But just a thank you to the great Ken Burns for his titanic documentary on the subject that will be the definitive treatment of this dark period in our history for hundreds of years to come. What a legacy he’s leaving our country (including his other great works).

---

Pray for the men and women of our armed forces, and all the fallen.

God bless America.
---

Gold closed at $1474…new high
Oil, $112.79…highest since ‘08

Returns for the week 4/4-4/8

Dow Jones +0.0% [12380…up four points]
S&P 500 -0.3% [1328]
S&P MidCap -0.9%
Russell 2000 -0.7%
Nasdaq -0.7% [2780]

Returns for the period 1/1/11-4/8/11

Dow Jones +6.9%
S&P 500 +5.6%
S&P MidCap +8.9%
Russell 2000 +7.3%
Nasdaq +4.8%

Bulls  57.3
Bears 15.7   [Source: Chartcraft / Investors Intelligence…lowest # of bears since late-Dec. 2009’s 15.6. Market would drop about 5% a few weeks later but then the rally resumed. Normally such a low bear reading would be more significant as a contrarian indicator. Maybe this time.]

Have a great week. I appreciate your support.

Brian Trumbore



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Week in Review

04/09/2011

For the week 4/4-4/8

[Posted 7:00 AM ET]

Wall Street and Washington

I have to admit, folks. I’m really burned out from the past few years since the financial crisis hit. I yearn for those days of 12-14 page weekly wrap-ups but today there’s always something new and big that needs to be covered and given the proper treatment as I compile this running history of our times.

However…as I go to post, look who is back at Augusta entering round three of The Masters.

McIlroy -10
Day -8
Choi -7
Woods  -7

You don’t have to like him (I don’t), but should he be up there by late Saturday, heading into Sunday’s final round, the television ratings will be enormous.

Alas, also as I write, Republicans and Democrats averted a government shutdown. I’ll have more on this next time, as well as Congressman Paul Ryan’s plan for 2012 and beyond, but for now what is truly pathetic about our system is that it took Congress all this time to agree on a budget for the remainder of the fiscal-2011 year which is already six months old!

I love how people just by rote say “We are a great country.” No we aren’t. We have some outstanding people, like those serving in our armed forces, but for years now we have hardly been a great country. 

But before you get all over me for this statement, I’m staring at the world map in front of me and only a handful of prospects for greatness catch my eye. Perhaps Australia and New Zealand, though I’d need to give this far more thought. Some of the Scandinavian countries could qualify, but they’re so damn expensive. Canada is a contender. That’s about it.

I like to take each year as it comes in terms of forecasting but I’ve been giving 2012 a lot of thought the past few months and I want to get down for the record that we will have a market crash next year…a big one…30% or so over the span of just a few days. And it will all be because a switch will go off, around the world, that there is no way America is going to deal with its deficits. Everyone is thinking about it today, no doubt, but market reaction has been minimal [3.60% on the 10-year is hardly a reaction]

You may recall I wasn’t always this gloomy. At year end, just last December, after President Obama reached a compromise with Republicans on extending the Bush tax cuts and throwing in a payroll tax cut as a stimulus, I wrote the following on 1/1/11.

Looking at 2011, “I won’t be the least bit surprised if at some point in the first half in particular the market is up substantially owing to the stimulus. It would also be a real shot in the arm if the new Congress and President Obama got together on deficit reduction. Sending a message that both sides are serious, I commented the other week, could cause stocks to soar and I still believe this.”

Back in those heady days I stupidly thought our president would use the State of the Union to begin to educate the American people on the deficits and the exploding entitlement issues that threaten to bankrupt us. This was the time to do it, I thought, it being a non-election year, and if the financial markets thought Congress and the administration were serious there’d be every reason for the Street to rally big. The dollar would be rallying, too, as foreign capital flooded into the good old U.S. of A. ‘By jove, they’re beginning to get their act together,’ I assumed investors would muse.

Alas, that proved to be one helluva dream on my part. As for why the stock market is still rising with all the problems we face, including $112 oil and soaring commodity prices, it’s a fools game. I’ve been careful to say I didn’t expect a big down year, just 5% to 7% for equities, but today there remains zero…zero…reason for optimism. Be my guest. Play Fed Chairman Bernanke’s game of taking on more risk. I have my own ample equity investments but not one of the more substantial plays is in this country. I’m not a trader, and I’m looking long term, but be very careful, friends. We might skirt by this year, with smoke and mirrors, but we will pay the piper sooner than later.

So let me just touch on a few key issues of the day.

Chairman Bernanke, who none of us should forgive for ruining the lives of the elderly, the prime savers, in keeping interest rates at zero long after the true financial crisis had passed because he wants all of America to be investing in the stock market to build up a wealth effect, also said “inflation will be transitory” and that prices “will eventually stabilize.”

I’d be a hypocrite if I didn’t say I tend to agree with this. I have no opinion on gold or silver (I actually love silver going higher because it means more Web traffic for my article on the Hunt Brothers and the silver bubble), but on other commodities, save oil (which is high for geopolitical reasons), we are witnessing an incredible bubble. My bet is the CRB Index (of which I did an update for my “Wall Street History” column…check it out), which closed the week at 368, will still finish the year below the 12/31 close of 332. I see no reason to change my tune on that one. Why? Because I told you this last spike will indeed be the tipping point for the economy, demand will then fall, and many of the commodities in the CRB will absolutely collapse as the speculators are wrung out. In the meantime, while prices continue to rise I can look like a fool.

Of course commodities are also rising, including oil, because of our collapsing dollar and here the only thing saving stocks is that the decline has thus far been orderly.

The dollar is falling (just in time for a coming trip to France…thank you again, Chairman Bernanke…not!) because the European Central Bank has now raised its key lending rate for the first time since 2008 to combat inflation, while the Federal Reserve is perceived to be dithering and not facing reality on the price front. Additionally, the dollar is dropping because of our dismal fiscal situation as Obama works his magic and $trillions and $trillions suddenly appears on the wrong side of the ledger…the red side.

Why would any overseas investor take a chance on America these days given the fact we are heading to budget Armageddon?  [Congress’ latest move is encouraging, but I just don’t see the political courage to enact anything near like the Ryan plan of $6 trillion in spending cuts.]

Friday afternoon Federal Reserve Bank of Dallas President Richard Fisher said the central bank faces a “significant” risk of providing stimulus for too long and should weigh curtailing the final stages of QE2, the $600 billion bond-purchase plan that is to end in June, barring QE3.

“We at the Fed are near a tipping point. Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize operations in a timely way.”

Earlier in the week, speaking to how Bernanke has screwed savers, Fisher said:

“Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates. That state of affairs is not sustainable for a long period of time.”

At least someone in a position to do something about our sorry state gets it. It’s now up to Fisher to jack Bernanke up against a wall and get to him to understand that the funds rate should be 1.5% to 2.0%, not zero. Moving quickly to such a level would NOT kill prospective homebuyers as mortgage rates would rise far less than short-term rates. [Plus it’s not as if record low mortgage rates have helped the housing sector any as it is.] But it would rally the dollar, big time, and kill the commodities speculators, which in turn would kill this inflation issue of ours. Then again, I didn’t go to Princeton like the chairman did, so I apologize for wasting your time with my uneducated opinion.

Meanwhile, back to oil, thankfully there are some economists who understand that $112 oil is a killer. Mark Zandi of Moody’s Analytics said, “The surge in oil prices since the end of last year is already doing significant damage to the economy.” All you need to know is that the payroll tax cut has merely gone into the gas tank, while in a poll for AP-GfK, 2/3s of Americans say they expect rising gasoline prices to cause hardship for them or their families in the next six months. It’s also going to do a number on many a corporation and their profit margins.

And not for nothing, but why is it the financial press seems loath to talk about how just about every economist on the planet is rapidly scaling back their growth forecasts for the U.S.? We’re talking a standard yearend projection for the first quarter of 2011 of 3.0% is now 2.0% or less. The first half was supposed to be the high growth period for the year. I based my own forecast on a big slowdown in the second half that would hit earnings estimates as part of my projection for a down year on the Street in terms of equities.

Today, there is no reason to believe the Middle East, for example, will suddenly break out in song, linking arms from North Africa to Iran while doing a Coke commercial. I see it getting worse. Why?

When I took a look at 2011 end of last year, my focus, aside from China, was on two countries, Pakistan and Lebanon. They’ve been my two real hot spots to watch for some time now, Iran being an extension of Lebanon through Hizbullah.

So guess what? I’m not totally surprised stocks have continued to rise despite all the turmoil in North Africa and the Middle East because my two picks to upset the apple cart haven’t rolled over yet.

But they will…oh yeah…they will. And while Lebanon and Pakistan are not energy exporters, the chaos will just engender more uncertainty. 

The Islamists continue to make head way in Pakistan and there is zero reason to believe the military can prevent a decapitating strike on the heads of state there at some point, while in Lebanon, once the Special Tribunal for Lebanon formally issues indictments against members of Hizbullah, and possibly Syrian regime elements, for the 2005 assassination of Rafik Hariri, it’s Katy bar the door.

Before I wrap up this segment, though, just a few thoughts on Europe and Japan. In euro-land, Portugal’s caretaker government cried ‘uncle’ and went running to the EU (and by extension the International Monetary Fund) for a bailout, somewhere in the neighborhood of $105 to $125 billion by most estimates, prompting Church Lady to say, “Now isn’t that special.”

Greece, Ireland and Portugal…Constantine, Seamus, and Ricardo (as opposed to Manny, Moe and Jack). All told they will be in hoc to the EU et al for about $250 billion, once the EU approves Portugal’s bailout plan. Of course this is $250 billion in loans piled on top of $hundreds of billions in existing debt. And at interest rates the three countries can’t afford. Plus, they have to grovel and beg for their loans but to receive them, Germany and France, the two leaders of the EU and the European Central Bank, demand that Greece, Ireland and Portugal fire all the remaining civil servants! Plus, the three have to levy all kinds of new taxes! Plus, the ECB just hiked interest rates so all the homeowners with variable rate mortgages, bigger in Europe than in the U.S., get screwed yet again!

Why it’s the perfect recipe for growth, which is what they need to get out of their mess, right?

Of course not. But this is what the fringe euro-17 members face. It’s nuts.

There was a simple solution. Default. Pay senior bondholders 70 cents on the dollar and start over. Happens all the time to people and corporations around the world. But, as I’ve discussed ad nauseum in these pages it couldn’t happen in Europe because you’d be defaulting on the big European banks and then we’d learn these emperors of finance have no clothes, and we’d have the bank run to end all bank runs, as I mentioned the other day.

And I might as well repeat some of my other points since the crisis first hit. Like it’s going to be real good when Germany and France have new Socialist leaders in 2012. Right? Wrong. Hell, even Portugal’s Socialist now ex-prime minister couldn’t get his austerity program through parliament and Mr. Socrates was booted out. What’s funny is that for its bailout funds, now Portugal is going to have to enact even more of an austerity budget than what was turned down before. Isn’t that just super?! Oh, and remember this about $125 oil, which is what Europeans are paying. Try the equivalent of $9.00+ per gallon, which is the minimum all their drivers shell out these days, thanks to huge taxes tacked on at the pump. That’s real conducive to growth too, right sports fans?

So is it any wonder yours truly remains negative on the continent’s prospects, let alone the fact I didn’t see one economist this week, amid the happy talk that ‘Europe is going to pull out of this’ mention that when you have tens of millions of dissatisfied workers and pensioners, who have now either lost their jobs, are about to, or will at a minimum have their pensions slashed, you’ll have trouble in the streets, which is in its own way not conducive to economic growth? In fact it’s downright depressing. But I’ll issue my own report card on this last bit by end of May.

And finally there’s Japan. Last week on page one I wrote:

“This country will see another severe earthquake this year.”

Thursday’s 7.1 was indeed the biggest aftershock since the March 11 disaster. But this isn’t what I was predicting. I continued last week, “Obviously, another 7.5 or greater in a different part of the country has the potential to bring this nation to its knees, as if it isn’t already.”

[But I also can’t help but comment on the anchor on CNBC who upon hearing Thursday’s quake was reduced from a 7.4 to 7.1, harrumphed (he’s a big blowhard), ‘Well, understand that the 9.0 quake was technically over 700 times stronger than this 7.1.’ And why would this upset me so? Because you all know by now, and Mark Haines should have known, that it’s not always the number, it’s the depth of the quake that really matters. That was part of the issue on March 11 in terms of generating the tsunami. I would like Mr. Haines to go to Christchurch, New Zealand and ask those good folks how strong the quake was that destroyed their beautiful city? Try 6.3, Mr. Haines! Christchurch lost nearly 200 people and its offices tumbled down despite having the strictest building codes because the quake was shallow! This kind of irresponsible reporting needs to be condemned. Japan’s quake on Thursday was in the dead of night, there were few reporters on the scene, and he’s spouting off in his declarative, know-nothing fashion.]

I’ve been hard on those who are painting far too rosy a picture when it comes to Japan’s future. We all want to see the best. But then there is reality. So what did the Japanese government say on Friday? 

“Japan’s economy is suddenly in a severe condition due to the effects of the earthquake,” the Cabinet Office statement read. The government is asking major companies to cut electricity use in the peak summer months by a quarter, just as I’ve been writing.

I also wrote a week after the disaster, WIR 3/19:

“The tsunami contaminated vast stretches of land, mile after mile after mile, leaving it totally uninhabitable….

“Imagine what the 30-foot high wall of water was displacing; the oil, gasoline from cars and service stations, chemicals, waste and debris that will never be effectively cleaned up in our remaining lifetime.”

April 6 / Wall Street Journal

“As much of Japan worries about nuclear radiation, residents along its northeastern coast are confronting a different environmental disaster: the wide-scale destruction and contamination of farms and other land from salt water, chemicals and other detritus and toxins washed in with last month’s tsunami….

“The March 11 earthquake and waves…also spread debris and chemicals across hundreds of miles of the country’s best farmland, fishing areas and tourist zones. Government officials say they have only just started to survey the environmental damage, but early indications are that some ecosystems and the industries that depend on them could take years to rebound….

“One expert, Kyoto University associate professor Hagahisa Hirayama, estimated there could be more than 14 million tons of waste left over in Miyagi prefecture.”

Sorry, the above was self-serving, but just showing you how three weeks earlier you already had this story, which even now most people don’t get the severity of. It’s Love Canal times a million.

But here’s something I didn’t know, courtesy of the Los Angeles Times’ Julie Makinen and Ralph Vartabedian. [The L.A. Times is an outstanding newspaper…I get a kick out of some on both sides of the political aisle who don’t understand a paper is more than the editorial page.]

When it comes to Fukushima, officials estimate they have already accumulated 15 million gallons of highly radioactive water. “Hundreds of thousands of gallons are being added every day as the plant’s operator, the Tokyo Electric Power Co., continues to feed coolant into the leaky structures.”

So the Times’ compared the task faced by the operators of the Fukushima plant to that of the Hanford Nuclear Reservation in Washington state that is being decommissioned by the Department of Energy, eight reactors in all. Guess how much money it costs to process “about 58 million gallons of radioactive sludge now in leaky underground tanks” there? Try $100 billion to $130 billion. 

“But unlike Fukushima Daiichi, none of the Hanford reactors melted down and virtually all of the site is accessible to workers without risking exposure to dangerous levels of radioactivity.”

Unbelievable. Thank you Ms. Makinen and Mr. Vartabedian for bringing this aspect to our attention. So next time you see someone harrumphing that the worst is over at Fukushima and one day life will return to normal along the coast there, throw this in their face.

---

Libya: This is a total disaster. NATO has bombed the rebels twice in one week, killing 15, there’s a rift among the rebels themselves, at least one of the oil facilities was hit, the Libyan foreign minister who defected to Britain, Musa Kusa, was long implicated in a series of IRA bombings in both Britain and Northern Ireland, helping to ship Semtex to the terrorists, and the bottom line is there is no real plan for NATO and the United States other than further pissing off the decent Arabs who see the West as once again not keeping their word. Granted, when it comes to ‘keeping one’s word,’ such discussion is all relative when the topic is this region overall, but this is not NATO’s finest hour.

Editorial / Washington Post

“On Monday, the Obama administration achieved one of the president’s principal goals in Libya: withdrawing U.S. warplanes from the fight against Moammar Gaddafi. In his speech last week explaining his decision to support an air campaign, Mr. Obama said that after leading initial strikes, U.S. forces would transition to ‘a supporting role’; in practice, that has meant the grounding of AC-130 and A-10 Warthog planes that had been pounding the tanks, trucks and artillery of the Gaddafi forces.

“The unusual ceding of U.S. military leadership has served to reinforce Mr. Obama’s strategy of lowering America’s profile in the Middle East and sharing the burden of operations like Libya. The question is whether it is advancing more tangible U.S. aims in Libya – which according to Mr. Obama are protecting civilians.

“The early results are not encouraging….

“(The) dangers of the military stalemate for the United States increase with each day it lasts. The greater disorder in Libya, the greater the chance that extremist forces, including al-Qaeda, will push aside the pro-Western figures who now lead the opposition. Secretary of State Hillary Rodham Clinton said a month ago that ‘one of our biggest concerns is Libya descending into chaos and becoming a giant Somalia.’ And the longer the fighting continues, the more harm will come to civilians.

“Mr. Obama said last week that because of his grounding of U.S. planes, ‘the risk and the cost of the operation…will be reduced significantly.’ That may be the result in the short term. But if the withholding of American resources enables Mr. Gaddafi’s survival in power, the long-term consequences will be the reverse of the president’s promise.”

Editorial / Daily Star [Lebanon]

“The outbreak of a mass uprising in Libya, back in February, contained all the elements of high drama. Today, the situation in the country is moving closer and closer to farce.

“Now, the Libyan rebels are outraged that NATO forces are unable to deal a final blow to the Gaddafi regime, despite the statements by the Western alliance, dutifully detailing the percentage by which Libyan strongman Moammar Gaddafi’s forces have lost their power to fight.

“The quibbling over who is able to strike where, and how effectively, is only the tip of the iceberg. The country is now descending into civil war. A regular army, irrespective of how one might term Gaddafi’s forces, remains well-equipped and ruthless….

“(The rebels) mistakenly hoped that NATO would quickly help tip the balance and allow them to easily resist the onslaught of Gaddafi’s forces.

“Now, the rebels are caught between a rock and a hard place, spending efforts at securing political recognition from Europe and elsewhere, while unsure of how the Western alliance is truly keen on ending the fighting quickly.

“With every passing day, the body count in Libya is rising. And with every day, the damage to Libya’s economic infrastructure, and particularly its oil sector, is rising as well….

“The conflict might end in a de facto partitioning of the country into rival spheres, with the groundwork already laid in the form of tribal divisions. This will create, instead of the announced hope for a prosperous Libya, two deprived countries….

“(Western) powers cited a host of principles, such as human rights and international law, in justifying their original course of action. But their dithering over recent days has soured public opinion in this region over what is taking place, as people suspect that in the end, deals will be struck to ensure that Western oil interests emerge as the real winner.

“A job of this magnitude, left half-done, will not only be useless, but disastrous as well.”

Syria: President Assad made some pitiful concessions to Islamist opponents, though one concerned teachers who can now wear the niqab – the full Islamic veil that reveals only a woman’s eyes, which would be more than creepy if I were a little second-grader.

“Mrs. Muslafa? Why don’t we ever get to see your face?”

But Assad was also forced by the Islamists to close the country’s only casino. Noooo!

More importantly, another mass protest in the city of Deraa resulted in another 32 reportedly being gunned down. There is no exact toll for the past three weeks of demonstrations against the Assad regime but it would appear to be 200+. So much for President Obama’s policy of engagement.

Egypt: There is some potential good news here…really. While Islamists are eager to exploit Egypt’s new freedoms, and while the Muslim Brotherhood and other such groups appear destined to do well in the parliamentary elections now slated for September, a U.N.-sponsored poll shows that Egypt’s former Foreign Minister Amr Moussa leads the field of likely presidential contenders. That would be encouraging. And while 38% have a favorable opinion of the Brotherhood, 50% had a positive view of the secular Wafd Party. 63% also favor keeping Egypt’s peace treaty with Israel.

But Moussa has not always been a moderate. As the Wall Street Journal pointed out, an Egyptian pop song in 2000, at the end of his tenure as foreign minister, was titled “I Hate Israel, I Love Amr Moussa.” Not exactly the Beatles’ “I Want To Hold Your Hand.”

And then to shatter your thoughts of happy time in Cairo, you have the Salafis, the ultraconservative Islamists who are close to Saudi Arabia’s Wahhabis and their radical interpretation of Islam. The Salafis have shunned politics before, but are now planning to set up a party. If they join hands with the Brotherhood, a distinct possibility, look out. Consider that a recent rumor the Salafis were going to attack women who didn’t wear the headscarf at Assiut University, a school with 75,000 students, prompted women to stay away, according to a story I saw in the Associated Press.

So forget the first line of the above…wait 24 hours…wait ‘til September to see how the election shakes out (and first off, whether it is a clean one regardless of who gets the most votes). Egypt is indeed the key to the entire region’s security. Israel needs peace with its neighbor in the worst way. Should Egypt flip, and Syria and Iran (and thus Hizbullah) stay in the evil camp, Israel’s very existence is at serious, immediate risk.

Iran: A leading dissident group claims they have identified a secret facility that is churning out centrifuges for the Natanz plant that is enriching uranium. The turmoil in the region has been a huge positive for the mullahs as western focus is turned elsewhere.

Saudi Arabia: Defense Secretary Gates met with Saudi King Abdullah as part of Gates’ farewell tour (that would be a neat jacket…worn among select company) and Abdullah expressed how upset he is with U.S. policy in the region. But it’s also all about the Saudis being a bulwark against Iran.

Martin Indyk, former ambassador and expert on the Middle East, had the following thoughts on Saudi King Abdullah, now 87, in the Washington Post.

“Abdullah, this Sunni monarch of monarchs, custodian of the holy mosques of Mecca and Medina, can see the flames of instability and turmoil licking at all his borders. In the south, Yemen is imploding, to the advantage of his al-Qaeda enemies. In the east, Bahrain’s Shiite majority has been in such a state of revolt that Abdullah has already sent armed forces to prevent Iran from establishing a ‘cat’s paw’ on the Sunni Arab side of the Persian Gulf. In the north, Abdullah see’s Iraq’s Shiite-dominated government as nothing more than a front for the hated Persians. In the west, a Palestinian majority is demanding that the Hashemite king of Jordan become a constitutional monarch. Meanwhile, Egypt’s Hosni Mubarak, that other Sunni pillar of regional stability, has already been overthrown.

“Historically, in times of trouble, Saudi kings have depended on American presidents to guarantee their external security. But at this moment of crisis, Abdullah views President Obama as a threat to his internal security. He fears that in the event of a widespread revolt, Obama will demand that he leave office, just as he did to Mubarak, that other longtime friend of the United States. Consequently, Abdullah is reportedly making arrangements for Pakistani troops to enter his kingdom should the need to suppress popular demonstrations arise.” [Ed. I had never heard this one before.]

Indyk is urging President Obama to reach a new pact with Abdullah, whereby the king puts forward a plan for constitutional reform in return for a new security safety net. While Obama shows little signs of having an appetite for getting involved in real power politics at this moment, as Indyk puts it, “It’s not just Abdullah’s survival that is at stake. A revolt in Saudi Arabia could sink his presidency.”

Lebanon: Caretaker Prime Minister Saad Hariri (this nation moves pathetically slow in forming new governments) slammed Iran for its “flagrant interference” in the internal affairs of Lebanon and Arab Gulf states, in yet another show of courage from the leader who just months ago was viewed as kind of a wimp by yours truly, or perhaps more appropriately, I didn’t think Hariri had a desire to remain in the spotlight when he can choose the beach to spend the rest of his days on.

Since the collapse of his government in January, Hariri has launched one broadside after another against Hizbullah and its arsenal, demanding the group place its weapons under state control.

So Hariri this week vowed not to let Lebanon become an Iranian protectorate, with Hizbullah calling Hariri a puppet of the U.S.

But Hariri, in walking his tightrope in this incredibly fractured country, also blamed Israel for being “the largest investor in regional chaos and in causing violence and unrest in different directions.”

Israel: At least 14 Palestinians have been killed the past few days after Israel was targeted with mortar shells and a school bus nearly took a direct hit. Incredibly, Hamas wants to call an Arab League meeting to get Israel to stop retaliating. Unfortunately, Israel always hits some civilians in their retaliatory strikes, which makes for good propaganda and the cycle of violence is never ending. Of course in this latest round of tit-for-tat, Israel is well within their rights. I just wish they would stop with the settlements, but fat chance of that happening. And so we move on.

Yemen: The White House is trying to ease President Saleh out, a la Mubarak, but the administration wants counterterrorism operations in Yemen to continue, which is laughable as Al-Qaeda in the Arabian Peninsula gets stronger and stronger with this new safe haven of theirs.

Street Bytes

--The week got off to a solid start with Texas Instruments’ acquisition of National Semiconductor for $6.5 billion, a 78% premium to National Semi’s closing price, and later March same-store sales for retailers were better than expected, though Kohl’s were down 6.5% and Target’s 5.5%. But rising oil prices and uncertainty over the budget shutdown helped lead to a flat market in the end with the Dow Jones adding all of four points to 12380, while the S&P 500 and Nasdaq were each off 0.3%.

First quarter earnings start coming out this week and the Street awaits any news on margins and the ability, or inability of Corporate America to pass on rising commodity costs.

--U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.81% 10-yr. 3.58% 30-yr. 4.64%

With the rise in commodity prices, including oil, the bond vigilantes demanded more of an inflation premium on the long end of the curve so the 10-year saw its yield rise 14 basis points.

--The average stock mutual fund rose 6% in the first quarter of 2011, the best Q1 performance since 2006. Small-cap growth funds topped the general equity list at 9.4%, according to Lipper, while natural resources funds gained 13.7%.

--Bloomberg Businessweek reported on the top 10 underfunded state and city pension systems. For example, California has the largest gross pension shortfall - $92.7 billion – but has enough money to cover 70% of its pension obligations and is not in the top 10.

West Virginia is worst, just 43% funded with a pension deficit of $5.3 billion, followed by Illinois (51%), Connecticut (53%), Kentucky (54%) and Louisiana (56%).

The three worst cities are Philadelphia (just 47% funded), Chicago (52%), and Seattle (57%).

--Wells Fargo & Co., now the largest U.S. home lender following their merger with Wachovia, cut 1,900 employees from its mortgage unit as lending slows. The employees were given 60 days notice on March 23. Most of the original assignments were short-term in nature.

--Many Las Vegas investors are buying homes for all cash and then renting them. As reported by USA TODAY and Zillow.com, homes purchased for a mere $60,000 can get $800 a month in rent, a super return. But in terms of the Vegas market overall, ‘flat is the new up.’

--Due to changing consumer habits and overbuilding during the boom, mall vacancies hit their highest level in at least 11 years in the first quarter, 9.1%. The figure for strip malls is higher.

Of course it doesn’t help when online retailing hit 12% during the holidays.

--Federal authorities arrested two, a corporate finance attorney who worked for some of America’s most prestigious law firms, and a Wall Street trader in a brazen 17-year insider trading case that netted at least $32 million. A middleman has yet to be charged. Matthew Kluger, a Washington, D.C. attorney, realized he could glean information on pending merger deals by searching the firms’ computer systems for related documents, but he was careful not to open the docs, only scanning the titles, looking for clues. Kluger then worked with Garrett Bauer, a trader, with both using a middleman who supplied disposable cellphones, thinking their conversations couldn’t be traced. But investigators in New Jersey ended up listening in anyway.

Bauer and Kluger had numerous bank accounts and allegedly had $hundreds of thousands of dollars in their possession at all times as they became paranoid their scheme would otherwise be found out.

--Chinese Premier Wen Jiabao admitted there were serious problems in the management of public finances and fighting corruption.

“Corruption is still a recurring problem in some fields, and some cases are so alarming that they have extremely bad implications….The root cause is that there isn’t a sound system in place and there’s a lack of enforcement of existing rules as well as insufficient supervision.”

--China raised interest rates a fourth time in its ongoing attempt to quell inflation, which is expected to hit 5% in March before backing off later in the year. China’s largest homebuilder announced sales are slowing sharply. The Asia Development Bank is nonetheless forecasting growth of 9.6% here for 2011. ADB has India’s GDP coming in at 8.3% vs. 8.6% last year.

--China shut down nearly half of its dairies after their licenses were revoked in an attempt to clean up the scandal-plagued sector. But there was a report on Friday that three children died as a result of drinking tainted milk this week.

--The SEC is looking into fraud at Chinese small caps, including in companies such as China Century Dragon Media, which reportedly sells advertising space and was just delisted from the New York Stock Exchange less than two months after its IPO. Or a Chinese mining company which may not have any actual mines (when I read this, old-timers, I immediately thought of Bre-X). None of this helps my own holding in China. I’ll have more to say on this next week after I have a meeting in New York on the topic.

--Colombia’s oil production is picking up, 100,000 barrels a day more just since August as production for March hit 884,000 barrels. This is good for the U.S. as Colombia ranks 10th among exporters of crude to America, averaging 365,000 barrels a day last year. That may be just a fraction of the 11.7 million barrels the U.S. imported in 2010, but exports to our refiners are increasing. [Granted it’s not the low-sulfur crude favored by us, but it will have to do.]

A big reason Colombia is picking up on the production front is because of much better security, as attacks by leftist guerrillas on pipelines and the power grid have come down from about 500 a year in the early 1990s to just 30. [Los Angeles Times] I took a very small position in a company just two weeks ago that has exposure to Colombia’s oil & gas sector (as well as Israel’s). I’m also kind of itching to go to Colombia…

--…For no small reason because the White House is close to agreement with Colombia on a free trade agreement, that still needs to be ratified by Congress. Colombia made improvements on the contentious issue of labor rules, but now some in Colombia are saying their government is going too far to appease Obama, who needs Big Labor to get re-elected.

--Interesting piece in the Wall Street Journal by Geeta Anand on India’s education system. We constantly hear talk of how they are churning out engineers and such, but the fact is very few of the graduates are actually qualified, or, importantly, can communicate effectively in English, as any of us who deal with call centers know. So many companies are now looking to the Philippines and Nicaragua for their outsourcing.

--BP was given permission by U.S. regulators to return to 10 existing wells and projects that were already underway in the Gulf of Mexico prior to last spring’s Macondo disaster that killed 11 and led to the worst oil spill in U.S. waters. In exchange for permission to return to drilling, BP agreed to give the government 24-hour access. All of BP’s Gulf wells are located in deep water. The company will not be allowed to drill any new exploration wells. Nonetheless it’s a huge positive for BP.

--The SEC intends to investigate past acquisitions by Berkshire Hathaway to see whether David Sokol held shares in other targeted companies before deals were announced, Sokol being forced to resign following his investment in Lubrizol that brought shame to Warren Buffett, who beyond his initial rush statement on the matter has now gone radio silent. But as Barron’s notes, Berkshire’s board may be losing its patience on Buffett’s reticence to name a successor. Some say Buffett could actually step down and name buddy Bill Gates as interim CEO while a successor is found. Now that would be interesting, though not necessarily good for Berkshire shareholders, I’d guess.

--Interesting blurb in the New York Post by Paul Tharp.

“Corporate titans, who have been waiting over a year to take delivery of their new Gulfstream 650 luxury jets, may have to wait another year as a result of the tragic crash during testing of one of the $60 million jets.

“The crash over the weekend, which occurred while the jet finished two straight hours of extreme takeoff and landing maneuvers in calm weather at an airfield in Roswell, New Mexico, claimed the lives of the four-member test-flight crew.”

The test was part of the yearlong certification process before the aircraft can be sold to the public and Gulfstream’s manufacturer, General Dynamics, already has orders for 200 of the new jet, $12 billion, including from the likes of Warren Buffett and Ralph Lauren. If a cause can be found, however, certification could nonetheless proceed quickly, so notes Paul Tharp, in talking to his source, but I kind of find this unbelievable.

--Speaking of airlines…the issue with Southwest and the 737 whose roof peeled off probably puts a halt to any expansion plans the carrier may have as it needs to focus on maintenance, it’s safe to say. It grounded all of its 737s while they underwent emergency inspections and found at least three with small cracks. Manufacturer Boeing conceded the cracks occurred about 50% earlier than they would have expected, after 30,000 takeoff and landing cycles, rather than 60,000. Not good.

--Meanwhile, in a performance survey of the 16 largest U.S. airlines (looking at items such as on-time arrivals and lost bags), low-cost carrier AirTran had the best overall rating, toppling previous leader Hawaiian Airlines. Regional carrier American Eagle ranked last.

Southwest held on to the top ranking for fewest customer complaints, while Delta had the worst rate.

Eighty percent of domestic flights arrived on time last year. The worst over the last 20 years was 2000’s low of 72.6%. Fewer bags were lost than ever in 2010.

--Ken S. passed along a Bloomberg story by Jeffrey Young on one of my favorite topics, infections and preventable illness in our nation’s hospitals. A study by Milliman Inc., found that “Hospitals and U.S. regulators fail to record at least 90 percent of patient injuries, infections and other safety issues.”

For example:

“Adverse events occurred during one-third of admissions at the hospitals, according to the researchers…(who) studied 795 patient records using the Cambridge, Massachusetts-based Institute for Healthcare Improvement’s Global Trigger Tool. The institute’s method involves reviews of patient charts by nurses, pharmacists and physicians….

“A six-year study of hospital admissions in North Carolina published in November in the New England Journal of Medicine found almost one in five patients were injured by their care.”

Milliman found that “Medical errors that caused harm to patients cost the U.S. $17.1 billion in 2008….

“The study identified about 564,000 injuries to patients admitted to U.S. hospitals and 1.8 million injuries to people using outpatient services.”

--Procter & Gamble sold its Pringles potato chip business to Diamond Foods, makers of nuts, for $1.5 billion, signaling P&G’s exit from the food sector. Pringles had sales of $1.4 billion last year. I can’t recall the last time I bought any, but it was probably the first year the product came out.

Separately, and having nothing to do with the above, if anyone wants any Girl Scout Thin Mints, I have boxes and boxes at home and if I don’t get rid of them, I’m going to gain about 20 pounds. Each Saturday when I go grocery shopping (after posting this column and doing my podcast), I get hit up by the mothers and their cute little daughters and as I walk into the A&P I say sternly, “I already bought 89 boxes last Saturday!” and then 15 minutes later walk out and buy another 70. 

--I missed this last time, but for the archives, Goldman Sachs awarded CEO Lloyd Blankfein some $18 million in cash and prizes in 2010, while his salary has been increased from $600,000 in 2010 to $2 million in 2011. $12.6 million of Blankfein’s comp is in restricted shares, which I’m sure doesn’t please Mrs. Blankfein. “Llooyyyyddd….why didn’t you get more cash?!”

Blankfein also received perks valued at $464,000, including $185,000 for use of a car. StocksandNews’ hidden microphone picked up the following conversation in an EXCLUSIVE.

“Good morning, Mr. Blankfein. Mighty fine day for a ride into the city!”

[Grunt…unintelligible…then, from a distance…. “Llooyyyddd…tell them you want more cash!”…grunt….]

--JPMorgan Chase CEO Jamie Dimon said the bank would pay for errors it made in processing foreclosure paperwork on defaulted home loans.

“Some of the mistakes were egregious, and they’re embarrassing,” he said. “We made a mistake, they were signing it based upon what they were told, not based upon checking the note file, checking the loan file. But the actual information in the affidavit was 99.5% accurate.”

C’mon. It was fraud! 

[Dimon’s pay package equated to about $23 million for 2010, including a $5 million cash bonus. Mrs. Dimon was most pleased, as were the children.]

--In another instance of private-equity gone bad, pizza and pasta chain Sbarro filed for Chapter 11, weighed down by debt tacked on with its purchase in 2007 by P/E firm MidOcean Partners. The company has more than 1,000 locations and said it would continue to operate as usual during the restructuring process. Yours truly has never eaten at one. Something about the look kind of grosses me out.

--But McDonald’s is hiring 50,000 full- and part-time workers as business improves and more of its restaurants opt to stay open 24 hours.

I went to my local McDonald’s for the first time in awhile to take advantage of their two fish fillet sandwiches for $3.00 offer and was startled to see a work crew that was all white, when for years it had been all Hispanic. That’s a commentary of some kind…on multi-levels, including, perhaps, immigration trends.

--The Hawaii Tourism Authority looks for Japanese travel to the state to decline between 30% and 45% each of the next three months for obvious reasons.

--In a study by the National Foundation for Credit Counseling, 33% of American adults say they have no rainy-day savings. [54% for African-Americans. 47% for Hispanics.]

--In a Gallup poll, 58% of Americans think U.S. nuclear plants are safe. I’ve changed my own attitude. I don’t believe they are…for one simple reason. Human error had everything to do with Fukushima and Chernobyl, and in case you haven’t noticed, there are some dumb humans living in our country as well. 

[In a separate poll by AP-GfK, more than 60% of Americans oppose building more nuclear power plants, up from 48% in November 2009, while 75% are only somewhat or not confident that the U.S. government is prepared to handle a nuclear emergency.]

--So as a result of the computer hacking into Epsilon, a data firm that stores customer names and email addresses for retailers and financial institutions, I, like all of you no doubt, am receiving all manner of emails from companies saying not to worry…no personal information has been compromised. But more often than not I’m thinking, ‘How did some of these companies get my address? I never thought I did any business with them.’ Yup, if you thought there was still some privacy in cyberworld, episodes such as this tell you otherwise. 

Foreign Affairs, part II

Pakistan: There are growing concerns that Lashkar-e-Taiba, perpetrators of the Mumbai terror assault in 2008 that killed 160, is spreading out to the likes Australia, Europe, East Asia and the United States, according to the U.S. and India, as well as British and French intelligence. Various experts believe LeT could launch attacks here in the states.

Meanwhile, you had your basic double suicide bomb attack outside a shrine in Punjab that killed 41. I see this was a “13th century (shrine) of Sufi saint Ahmed Sultan,” so I’m thinking I can’t imagine too many of the original bricks remain. Just guessing it’s been bombed about 800 times in 800 or so years, because that’s what they like to do.

Afghanistan: It really is amazing that a wacko pastor in Florida, Rev. Terry Jones, can burn a Koran and actually get recognized for this, not here, but in Afghanistan, land of the illiterate, and singlehandedly threaten any progress the United States has made in winning over the hearts and minds.

And you had the story in the Wall Street Journal titled “Al Qaeda Makes Afghan Comeback,” this as we’ve been told that only about 100 operatives existed in Afghanistan. Of course the whole point of the Afghan war, aside from taking out bin Laden, was to eliminate al-Qaeda’s camps, and convince the Taliban to break ties with them.

So we’re back to finding al-Qaeda in Afghanistan and hoping Pakistan helps us out with the Taliban in the frontiers of that nation and it’s almost ten years after 9/11 and essentially nothing has changed. We certainly haven’t won over any hearts and minds.

Iraq: Incredibly, Prime Minister Nouri al-Maliki still hasn’t appointed a defense minister or national security adviser as the United States prepares to leave by year end. Some Iraqis do not want to see us go, recognizing the tremendous vacuum it will create in a nation whose government is in disarray as it is. But Maliki doesn’t want to request for an extension because he doesn’t want to be seen as weak. So one thing is for sure in 2012. Iraq is as likely as any other country to dominate the headlines.

[I see just as I’m going to post that Defense Sec. Gates says we may indeed keep some troops in Iraq, but first Maliki has to ask.]

China: The United States is not happy with the growing number of disappearances and detentions of human rights activists after Ai Weiwei, a famous artist who helped design the Beijing Olympics’ Bird’s Nest Stadium, was taken away before boarding a flight to Hong Kong. Police then raided his Beijing studio. All of this action is a result of the unrest in the Middle East and North Africa and fears it could spread to China.

Ai is an outspoken critic of the government and he now joins Nobel Peace Prize honoree Liu Xiaobo in prison. Liu is serving an 11-year term for subversion.

For its part, Taiwan’s government issued a statement:

“The Mainland Affairs Council urges the Chinese side to immediately set Ai Weiwei free and make proper explanations of the incident.

“The Chinese people’s demands for freedom, democracy, human rights and reforms are on the rise and we urge the mainland authorities to face and respect that.”

Ai was due to hold a solo exhibition in Taiwan in November and was to have met with curators this past Wednesday in Taipei but obviously was unable to.

So why is he being held? Beijing said they were holding Ai for “suspected economic crimes,” at least confirmation, and an admission, they were holding him in the first place. No further details have been given. Police have 30 days to decide whether to charge him. According to one legal expert, though, the Chinese have already broken the law by not explaining Ai’s detention within 48 hours. [South China Morning Post]

North Korea: The head of U.S. forces in South Korea told a congressional hearing on Wednesday that Pyongyang could be preparing for “additional attacks and provocations.” Of course this isn’t a new theory but is part of the transfer of power between Kim Jong Il and his son, Kim Jong Un, who it is expected will be elevated to vice chairman of the all-powerful National Defense Commission at this week’s Supreme People’s Assembly, but, as I go to post, Kim Jong Un hasn’t been seen, nor is he on the list of new Cabinet members, signaling there is a little hitch or delay. It’s possible that Kim Jong Il just believes he is healthy enough to stay on himself and now isn’t the time to weaken his power base.

Venezuela: U.S. Southern Command head Gen. Douglas Fraser said on Tuesday that Iran’s growing relationship with Venezuela is a major concern. Your editor noted this back in about 2005. Fraser told a congressional committee:

“My concern…is the fact that there are flights between Iran and Venezuela on a weekly basis, and visas are not required for entrance into Venezuela or Bolivia or Nicaragua. So we don’t have a lot of visibility in who’s visiting and who isn’t, and that’s really where I see the concerns.”

I’ve also noted in the past that Hizbullah has a presence on the lawless border between Bolivia and Paraguay. Should the United States come to blows with Iran, no doubt various sleeper cells will become activated in our hemisphere. Jewish groups in Latin America have particular cause for concern.

Brazil: The nation was stunned when a 24-year-old man walked into his former Rio school and opened fire, killing 12 and wounding at least 18 others before taking his own life. The shooter left a suicide note.

Mexico: Police and soldiers surprised a gang that was setting fire to a shopping center in Acapulco and the resultant shootout left three dead. Last month there, 10 were killed when police stormed a nightclub. Ergo, if you’re on a game show and you win a trip to Acapulco, hold the host hostage and demand a trip to Bermuda.

And, you also had your basic discovery of 59 bodies in northern Mexico, near a site where a drug gang massacred 72 last summer.

Northern Ireland: In a bad sign that violence could be returning here, a 25-year-old policeman was killed by a car bomb by dissident IRA members.

The timing was intentional, with Queen Elizabeth II due to make the first visit by a British monarch to Dublin in a century, while Ulster voters go to the polls soon to elect a new Assembly.

As an editorial in the London Times stated:

“No one in the Catholic community wants to continue picking at old grievances; all are ready to embrace the opportunities of peace. But to do so, they must drive the killers from their midst.”

Haiti: Congratulations to Michel “Sweet Micky” Martelly, a former carnival singer, who won Haiti’s runoff election in a landslide. If approved, Mr. Martelly takes office on May 14. Par-tee!

Zimbabwe: The leaders of South Africa, Mozambique and Zambia criticized President Robert Mugabe at a regional conference for escalating violence in Zimbabwe, to which Mugabe essentially said ‘butt out.’ Someone drive a herd of elephants through Mugabe’s home so we can end this dark chapter once and for all.

Random Musings

--General David Petraeus is reportedly in line to take over the CIA by year end after he leaves his stint as top commander in Afghanistan this fall. Petraeus really wants to be Chairman of the Joint Chiefs of Staff, replacing Admiral Mike Mullen, but President Obama prefers General James Cartwright, who I have to admit I never heard of.

As for current CIA Director Leon Panetta, it seems he is now the frontrunner to replace Robert Gates, who is stepping down at defense sometime this summer.

One associate of General Petraeus told the London Times, “It appears they don’t want him as Chairman of the Joint Chiefs because he’s too well known, too celebrated, and would have influence beyond his position. It’s tragic.”

--An NBC News / Wall Street Journal survey of prospective Republican primary voters has Mitt Romney in the lead with 21%, but Donald Trump is tied with Mike Huckabee for second with 17%, followed by Newt Gingrich 11%, Sarah Palin 10%, Tim Pawlenty 6% and Michele Bachmann 5%. In other words, while I find Trump entertaining, I’m one Republican who looks at the above list and winces. Mitch Daniels didn’t even get 1%. Maybe I’ll just take a long trip somewhere between Nov. 2012 and Nov. 2016. They say Greenland is getting greener.

[As for Bachmann, she is quickly supplanting Palin as Tea Party favorite.]

--Democratic National Committee Chairman Tim Kaine is running for the U.S. Senate seat in Virginia being vacated by Democrat Jim Webb. Former senator George Allen is the current frontrunner for the Republican nomination. Taking Kaine’s place at the DNC is Rep. Debbie Wasserman Schultz of Florida in a move I don’t understand. She’s highly irritating.

--Meanwhile, President Obama officially kicked off his re-election campaign, one in which it is expected he will raise $1 billion. Obama shattered fundraising records when he raised $745 million in 2008, twice what John McCain collected. Obama has already asked more than 400 fundraisers to collect at least $350,000 each by year’s end.

--Historian/economist Niall Ferguson, author of the book “Civilization: The Rest and the West,” as well as an accompanying television series, talks about how the west came to dominate civilization for nearly 500 years. So in BBC History Magazine they ask Ferguson the question, “What changed that enabled the west to become so dominant?”

Ferguson: “Obviously there was a legacy of western civilization 1.0 – the Greeks and Romans. There was ancient learning in Greek and Latin that western civilization 2.0 was able to draw on during the Renaissance. It was a kind of launch pad for this story and it survived not least thanks to the Arabs.

“But there are these six killer applications – to use modern computer terminology – that differentiate the second western civilization from the first and they are the key to my book. Each of them is unique and each, for a while, the west monopolized.

“I start by talking about competition and fragmentation of both political and economic institutions. Second is the scientific revolution, which really did change the game and was a purely western phenomenon. It was also different from what the ancients had done in both its methods and in the scale of its achievements.

“Third is the idea of property rights as the basis for the rule of law and ultimately for politics. That was a hugely important idea and again it was new. Next is medicine, which doubled human life and that was a pretty big advantage. My fifth killer app is consumerism, or the consumer society. Finally there is the work ethic, the get out of bed at six, collapse into bed at midnight work ethic that I think was distinctively western for a time.

“Each of these things gave the west an advantage and ensured it became unbeatably superior to the rest. It was richer, smarter and better capable of understanding the natural world. It was better ruled, because basing government on representative institutions and private property rights really works. The west became healthier, better clothed and sheltered. Ultimately it also became much more efficient at working.”

As to why it’s taken 500 years for the rest of the world to finally start catching up to the west…

“With the exception of Japan it is very close to 500 years and Japan’s catch-up was disastrously mishandled in the sense that it produced the Second World War. We need to ask why the magic of industrialism was not embraced more readily by the likes of China and India.

“One argument is that there was a high level equilibrium trap in China. They’d figured out how to feed an enormous amount of people by growing rice, and they had a very carefully structured system that just worked. However this system turned out to be a victim of its own success because it removed the incentive for progress.”

North-western Europe, on the other hand, was conducive to innovation.

But are we now witnessing the death knell of western supremacy?

“Yes, although it may not be a death knell. It may be a ring tone. It’s not necessarily the end of the world that the most populous countries on earth escape from grinding poverty.

“China, the west’s main rival, now has all the killer apps except for one. It doesn’t have a political system anything like as representative or law based as the ones in the west. That might be a problem for them at some point.”

--I was reading a piece in the Washington Post on one of the few political figures I respect, Republican Sen. Richard Lugar of Indiana, and defense expert Lawrence Korb made the point of Lugar, “I think he is very concerned about overextension of the U.S. military.”

I read Army Times and Defense News each week and this is a topic that really jumps out at you. Our forces are incredibly overstretched, and our military personnel have never had the divorce rates, suicides and drug abuse that exist today, including Vietnam. It’s the prescription drug abuse that is so troubling, which of course helps lead to the other two problems.

During a dinner for a service organization I belong to this week this topic came up and along these lines, I’ll repeat just one more time that there are all kinds of good groups you can contribute to that help our troops.

The other day I gave another donation to a group in California I’ve become familiar with and mentioned before, thanks to reader Josh P. and friends of his like Becky R.

CAN People
c/o EMWD [Eastern Municipal Water District…but EMWD suffices]
PO Box 8300
Perris, CA 92572-8300

They put together care packages, including basics like toiletries. I’m sure there’s a group in your community. It would take you no more than 30 minutes to make a few calls and write a check, or help put packages together.

The point is, yes, our troops serving in Afghanistan in particular are stressed out. Put a smile on some of their faces. Make sure they know their country loves them. 

--Lots of goings on in the world of U.S. network television this week. Fox announced that Glenn Beck was transitioning off of his daily program. Just a few weeks ago I noted in this space that Fox’s ratings for folks like Beck were taking a beating beginning with the turmoil in North Africa and then Japan’s triple disasters as many viewers switched to CNN and MSNBC for hard news coverage. I have to admit I’ve watched more CNN myself these days. Some of the female anchors and reporters are more attractive than Fox’s blond brigade. [CNN’s male anchors, however, are insufferable save for Wolf. Wolf rocks.]

Anyway, NBC’s “Today” is going to lose Meredith Vieira this fall and Matt Lauer after his contract runs out Dec. 2012, so say sources. Ann Curry would likely replace Vieira, but when it comes to replacing Lauer, my money is on CNBC’s Carl Quintanilla, a likable sort. [He’s not on the list as yet, but he will be.]

And Larry King is returning to television, appearing in an infomercial for BreathGemz breath fresheners alongside his wife, Shawn Southwick (and hopefully not that bratty older son of theirs). Yup, Larry has officially lost it.

--What an embarrassment for New York City Mayor Michael Bloomberg. His choice as schools chancellor, Cathie Black, resigned after a whopping four months on the job. Black, the former Hearst Magazines chairman drew 17% approval ratings and non-stop protests from parents.   Bloomberg said, “I take full responsibility for the fact that this has not worked out.” To replace Ms. Black, Bloomberg has appointed a deputy mayor who once taught kindergarten, so, assuming Dennis Walcott gets approved, look for major nap time for the city’s kids. Personally, I like to take a quick nap after lunch during the school week, and a longer one on Saturdays.

--The European Union warned that the emergence of antibiotic-resistant infections has reached unprecedented levels. Each year in the EU over 25,000 people die of bacterial infections that are outsmarting the newest antibiotics. The World Health Organization says the situation is critical.

And this is gross. Cardiff University researchers “now say bacteria with this new genetic resistance to antibiotics have contaminated New Delhi’s drinking water supply, meaning millions of people there could be carriers.”

Yuck. Yet another reason to always travel with Coors Light, sports fans…made from Rocky Mountain spring water. Want more proof?

“650 million citizens (in India) do not have access to a flush toilet and even more probably do not have access to clean water,” the researchers warn in the journal Lancet Infectious Diseases. [BBC News]

--But there was some good potential news on the health front, this from researchers at Ohio State University that found preliminary data shows strawberries may help prevent esophageal cancer, which is the sixth most frequent cause of cancer death in the world. Researchers specifically used freeze-dried strawberries, which were able to significantly inhibit tumor development in rats.

As reported by the Wall Street Journal, Tong Chen, who headed up the study, said “the freeze-dried substance is about 10 times as concentrated as fresh strawberries, but suggested people could still benefit from eating whole strawberries on a daily basis.”

I’m screwed. I don’t like strawberries.

--Sign of the Apocalypse: Gloria James, mother of LeBron, was arrested by Miami Beach police after she reportedly assaulted a valet worker who was slow in delivering her car. 

--So a lot of experts picked the Boston Red Sox to win the World Series this year after making some big offseason moves that appeared to shore up the team, yet for the first time since 1945, Boston got off to a 0-6 start. In ’45, Boston had lost Ted Williams, Bobby Doerr, Dom DiMaggio and Johnny Pesky to military service and started 0-8 on their way to finishing 71-83. Alas, Boston won its home opener on Friday against the Yankees to go to 1-6. My Mets, after a 3-1 start, are back below .500 and I officially don’t care again.

--Finally, April 12 is the 150th anniversary of the start of the Civil War at Fort Sumter. My brother and I are heading down there this October for some history (and good food in Charleston).

But just a thank you to the great Ken Burns for his titanic documentary on the subject that will be the definitive treatment of this dark period in our history for hundreds of years to come. What a legacy he’s leaving our country (including his other great works).

---

Pray for the men and women of our armed forces, and all the fallen.

God bless America.
---

Gold closed at $1474…new high
Oil, $112.79…highest since ‘08

Returns for the week 4/4-4/8

Dow Jones +0.0% [12380…up four points]
S&P 500 -0.3% [1328]
S&P MidCap -0.9%
Russell 2000 -0.7%
Nasdaq -0.7% [2780]

Returns for the period 1/1/11-4/8/11

Dow Jones +6.9%
S&P 500 +5.6%
S&P MidCap +8.9%
Russell 2000 +7.3%
Nasdaq +4.8%

Bulls  57.3
Bears 15.7   [Source: Chartcraft / Investors Intelligence…lowest # of bears since late-Dec. 2009’s 15.6. Market would drop about 5% a few weeks later but then the rally resumed. Normally such a low bear reading would be more significant as a contrarian indicator. Maybe this time.]

Have a great week. I appreciate your support.

Brian Trumbore