With North Korea testing a second nuclear warhead (just weeks after testing a long-range ICBM) -- and Iran feverishly trying to develop its own nuclear weapons - Israel's deputy defense minister said today Israelis need to prepare for all out war. A massive, full-country war readiness exercise will commence in Israel on May 31, designed to test the nation's emergency preparedness for thousands of missiles coming in from all directions.⁶

Israel will likely suffer simultaneous missile strikes and terrorist attacks in the next outbreak of war, Deputy Defense Minister Matan Vilna'i told the Knesset's Foreign Affairs and Defense Committee on Monday.

That is why the Home Front Command is conducting a five-day drill next week, dubbed Turning Point 3, which will send Israelis running for their bomb shelters on June 2.  "This isn't an imaginary situation. This isn't detached from reality and if there is a war, it's very likely that this is what will happen," Vilnai said, during the committee hearing.

On the third day of the drill, at 11 a.m., a siren will go off throughout the entire country, and everyone is expected to immediately head to the nearest shelter or protected space.⁷

The Pentagon has updated its plans for using military force against Iran at the request of President Barack Obama, Defence Secretary Robert Gates said Friday.

The United States has not ruled out the possibility of a military strike if diplomacy fails to resolve the international dispute over Iran's nuclear activities, Gates said.  'Presidents always ask their military to have a range of contingency plans available to them,' Gates told NBC television. 'And all I would say is that, as a result of our dialogue with the president, we've refreshed our plans and all options are on the table.'⁸

The most compelling reasons Iran should not possess a nuclear weapon can be broadly grouped into four categories: the direct threat to the U.S. and its allies, Iran's support of terrorism, regional destabilization, and Iran's troubling human rights record. For these reasons, the prospect of a nuclear-armed Iran should concern every American and be unacceptable to the community of nations.⁹

The U.S. dollar fell to five-month lows against a basket of currencies Friday as an advance in global equities and signs of an easing global recession drove investors to snap up higher-yielding currencies and riskier assets.

"Money is flowing out of the dollar," said Hoversen at MF Global. "There was a lot of institutional money sitting on the sidelines during the worst of the crisis that now is looking for (higher) yields."¹⁰

Are the Chinese finally getting serious about loosening their ties to the dollar--and even replacing the greenback with the yuan as the global economy's reserve currency? The evidence is mounting that they are.

For the last two months, China's leadership has been complaining about the country's dangerous dependence on the dollar. Beijing holds $2 trillion in dollar assets, accumulated through years of exports to America and massive purchases of Treasuries by the Chinese government. If Washington can't rein in its mounting budget deficit, both Treasuries and the greenback could weaken considerably--and the Chinese could be big losers as a result.¹¹

Crude oil prices were on course on Friday for their strongest monthly rise in more than 10 years following this week's Opec meeting where the oil producers' group delivered a surprisingly upbeat assessment of demand.  US crude prices have risen 29.1% in May, on track for their best monthly performance since March 1999.

Gold hit the $980-a-troy ounce level yesterday before easing back to $979.90, up 2.2 per cent on the day and gaining 2.5 per cent this week. It was helped by concerns about rising levels of government debt.

Silver rallied 6.4 per cent to $15.56 this week and was on course for a gain of 26 per cent in May, its best monthly performance for 22 years.¹²

Excellent insight from John Browne:  Consumers may be confident that something is "being done" to solve the economic crisis, but either do not understand or have misplaced faith in what the corrective policies amount to - socialism. It may feel good now, but it is neither wise nor sustainable.

"Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy," said Winston Churchill. Although it inevitably lowers living standards, socialism feels good - at least at the outset - as "free money" flows in great abundance. Keep this in mind as we examine the "good news" about consumer confidence.

All indicators are still negative, and the government's actions have merely covered over that weakness. Indeed, it appears that the Administration is driving us deeper into recession. It is likely that, when reality dawns, the rush from the U.S. dollars, stocks, and bonds will be truly devastating.

It is true that the financial collapse that threatened does appear to have been averted by "officially" hiding and avoiding the problem of toxic assets. But the lesson from Japan, which did the same, is that avoidance is no cure and will only allow the wounds to fester.

In other words, the government is forcing the bone to heal before it's been reset, so that even if we're happy to be limping now, it will be that much harder to ever correct our gait down the road."¹³

The stock market chopped around all week on extremely light volume. The big banks with their buying programs are running the show right now. The real economy continues to deteriorate no matter what the cheerleaders tell us. We have consolidated the gains at the top and it's still possible that the market has one more thrust to the upside before cratering again.

The dollar eroded more this week as foreigners continue to diversify out of the dollar. Not even geopolitical concerns could lift the greenback. Too much debt and little prospects for lifting the economy out of the recession are the main drivers. U.S. investors are also starting to take precautions and diversify their investments out of the United States.

As mentioned every week, the prospects for the dollar are dire. Don't wait until there is a crisis and it's too late. Get into tangible (REAL) assets while there is still purchasing power in the dollar.

I still favor physical metals, farm land or anything tangible over paper investments (especially those denominated in U.S. dollars). The debt is simply too much to overcome for any country, even the U.S.

Treasuries plunged this week as the country had to raise 100 billion dollars in treasury auctions. Yields have now risen to levels not seen since last year. This will threaten any recovery as yields on mortgages have risen...reducing affordability.

Why are treasuries going down even as the government is said to be buying them? At the present interest rate, there are more sellers than buyers. With all the supply coming, it is a nearly impossible task of selling treasuries to any foreign countries. The debt at some point will implode under its own weight. It was unsustainable when we had foreign buyers and now that they are diversifying away from the dollar, it is inevitable that the government debt bubble will burst. When it does, stock, treasuries, and the $ will all fall together. This could threaten the entire financial system.