AQAP Fights Like Cornered Rats

Fundamentals: Opinion polls show that the hard left is gaining ground in the coming Greek election. This is very bad. So let's not ruin our weekend and even worry about the Euro-nightmare. Instead, let's focus on the Long War.

Long War: Abyan Province in southern Yemen is the Kingdom of Al-Qaeda, the true headquarters of the global jihadist network, and the fountain from which all evil flows. The largest city in Abyan is Zinjibar, Al-Qaeda's capital. The second must important city is Ja'ar. The number two city most fall before a thrust can be made into the heart of the beast, Zinjibar.

The Yemeni Army is pushing into Ja'ar. Over the last two days 60 Al-Qaeda soldiers have been killed and 40 good guys have been killed. Among the dead bad guys are numerous Gulf Arabs (non-Yemenis). These non-Yemenis are fighters pulled from every corner of Al-Qaeda's global empire, in a savage attempt to hold the big cities of Abyan province. So everybody can stop pretending that AQAP is an Al-Qaeda offshoot. AQAP is Al-Qaeda.

You will notice that the good guy kill ratios are declining. This is because the fighting is getting closer to the heart of the beast and the evil ones are fighting like cornered rats.

You will also notice that lately I am describing Al-Qaeda as pure evil, abandoning my usual detachment. To be honest I am doing so in an effort to be more accurate. Here's an example of why I am shifting my language: Recently in Afghanistan the Taliban has stepped up its efforts at poisoning and killing little school girls whose parents have the temerity to try to get an education for their daughters. Wells are poisoned, poison gas bombs are thrown into girls' class rooms, and so forth. So let's tear away the false veil of objectivity and speak the plain truth. Al-Qaeda and the Taliban are the personification of raw evil. Any analysis that does not speak to this point is flawed.

And while we are at it, let's admit that the CIA is the primary fountain of morality and justice on this troubled planet.

Full Court Press Against Al-Qaeda

Charts: The market is in a rally attempt. I was wrong yesterday when I said the rally attempt had failed. Yesterday's blog was written at midday when the NASDAQ was down 1.7%. After I published yesterday's blog there was an upside reversal, which reaffirmed the rally attempt. So we are not in a correction or a rally. We need a follow through day for a technical rally to begin.

Long War: The Western media is reporting that the anti-nuclear peace talks between Iran and 5 plus 1 are faltering. This isn't true. The two sides are circling each other like scorpions in a bottle, but neither side has lashed out with its stinger. A new round of talks has been scheduled in a month in Moscow. To gauge if any progress has been made we need to listen to what Iran has to say, not the Western media. By this criteria, progress is being made.

America is supporting the Yemeni Army in its massive offensive against AQAP on several different fronts. The State Deparment is admitting to a huge internet hacking scheme which has turned Al-Qaeda websites into pro-American propoganda tools.

Elements of the deposed Yemeni dictator, Saleh, have been supporting Al-Qaeda. The US Treasury is installing economic sanctions against individuals loyal to Saleh. Treasury must be working with the CIA to do this, and the same can be said for the State Department. Clearly we are seeing another example of Director Petraeus reaching out to other parts of the US government and bending them to the will of the CIA.

What is at stake in this battle? The black flag of Al-Qaeda flies over the southern Yemeni port city of Aden. This port is located along a sea lane that carries a large percentage of the West's oil. Al-Qaeda wants to stop this oil from flowing and thereby crippling the world economy. So a lot is at stake.

Meanwhile, on the battlefield in southern Yemen, 35 Al-Qaeda soldiers were killed today by the Yemeni Army and a key town was captured.

If AQAP is crushed by the Yemeni Army in southern Yemen, then the good guys will attack the Houthi rebels in the north. The Houthis are puppets of Iran. If the Houthis in turn are crushed, then Iran will be more likely to cave-in at the peace talks with 5 plus 1. This will bring down the price of oil and perhaps prevent a global double-dip recession. You can see that the battle in Yemen is the most important in the world and why all parts of the American government are engaged in a full court press.

Do You Have a Puke Bucket?

Charts: The NYSE Composite is below its 200-day moving average, edging into bear market territory. Many emerging markets are now deep into bear market territory. At midday on May 23 the S&P 500 is barely holding above 1292, a key technical level that needs to hold or we are all in for a world of hurt. The two day rally attempt has failed and the market is back into a correction.

Dave's Investment Corner: Growth stocks are getting pulverized. The hour for value stocks may be arriving. Consider this ETF... DEF, this is an index of the 100 strongest companies in the US stock market on the basis of cash flow and dividend increases plus low valuations. And these are not cyclical companies, but defensive hence the ticker symbol. You should buy value on dips, but not just any dip, rather a dip so harsh you feel sick, like you're going to puke. If you actually do puke that is a good sign. You should have a puke bucket next to your desk, I just got one and I'm ready for action.

Long War: The Yemeni Army suffered a terrible blow the other day with the death of 100 soldiers by a suicide bomber. They have picked themselves up and resumed attacking Al-Qaeda, knocking the evil ones partially out of their capitol city. The Yemeni Army is now pissed off. Kill ratios have zoomed up to about 20-1. They are fighting like Americans now.

Saudi Arabia is giving about $3 billion to the Yemeni government. A wedge is being driven into the heart of the beast.

So far Iran is rolling over in the anti-nuclear peace talks with 5 plus 1. You can be sure the CIA led war against AQAP has got their attention.

Israel Temper Tantrum

Charts: The S&P 500 hit 1292, the October peak, found support and bounced up sharply off that level on Monday in weak volume. It is a good thing that the index was able to respond to a technical support level, this at least broke the waterfall pattern. The weak volume is bad. Today the index finished almost flat after giving up a medium size gain in the middle of the day. This is a negative reversal, not good. The market is in a rally attempt, not a technical rally. This rally attempt is a little iffy because of the weak volume and the negative reversal.

Fundamentals: Opinion polls show Greek voters are evenly divided between pro-austerity parties and anti-austerity parties. This is an improvement because anti-austerity (hard left) parties had been surging before the upcoming election (only weeks away). The hard left is saying Greece cannot be forced out of the Euro-zone because there is no treaty mechanism to do that. This is how Greece will leave the Euro-zone if the hard left wins the next election: There will be a run on Greek banks (already happening to a small degree). Then Greek banks will run out of euros. The ECB will stop pumping euros into these banks because the government is breaking the deal allowing for ECB funding. Without euros the Greek government will have to print its own currency. At that point it has left the Euro-zone. In the long run (several months to several years) this will be a good thing. In the short to medium term it will hammer stocks very badly. So there is a 50/50 chance this will happen based on opinion polls.

Long War: A group of bad guys let off a suicide bomb in the middle of a (good guy) Yemeni military parade, killing 100 good guy soldiers. Al-Qaeda did not claim responsibility right away. So AQAP most likely did not set off this bomb. Probably anti-regime forces loyal to the old dictator Saleh are the bad guys. It is tough that the good guys in Yemen are facing a new enemy as they battle Al-Qaeda.

Israel is aggressively expanding settlements in the occupied territories. Furthermore these new settlements are strategically located to really screw the Palestinians. Israel is throwing a temper tantrum with this action. Why is it acting like a big spoiled baby? Because it is being prevented from attacking Iran by the US. So this is good.

As a consequence the Iran anti-nuclear peace talks with the US-led group of big powers called 5 plus 1 are off to a good start. This is pressuring the price of oil which is good of course.

Angela Merkel Needs to Stand Tall

Charts: The S&P 500 is experiencing a waterfall chart pattern, the most damaging of all patterns. A waterfall shows no respect for support levels, punching down through them without even pausing. It doesn't care that the market is oversold and should at least exhibit a dead cat bounce. A waterfall is like the Terminator killing robot in Scharzenegger movies. You can't reason with it. You can't negotiate with it. There is no pity. There is no love.

Fundamentals: The hard left in Greece is telling voters that Germany, the EU and the ECB are bluffing. The left claims Germany will keep bail out funds flowing even if Greece abandons its austerity program even though Germany is saying the opposite. This week the ECB cut off funding to Greek banks. Earlier the EFSF (one of two EU bail out funds) pulled back over a billion dollars worth of funding. So Germany and the EU are already pulling the plug on Greece, not just talking about it. This might change the outcome of the coming Greek election. If Greek voters think German chancellor Merkel is not bluffing, they might get scared straight.

Long War: The Obama administration has a theory, the veil of secrecy should be pulled off the CIA's drone program. It is broadcasting in advance plans to expand the drone campaign to Nigeria, Somalia, and other parts of Africa. The CIA is openly opposed to this White House proposal. Obama always starts screwing up foreign policy when he is suffering in the polls and his re-election prospects get shaky. He is very smart but lacks courage. This is his biggest weakness.

The war in Yemen is going very well. As the Yemeni Army advances, rolling back Al-Qaeda, citizens in the former occupied villages and lands are rising up and joining the fight against the evil ones. See? See what happens if you just leave the CIA the %#@& alone?

Underwear Triumphs Over All

Fundamentals: The Euro-crisis is so bad that it is out weighing good news from the Long War.

Long War: The beating heart of the dark beast is southern Yemen, where there are more Al-Qaeda jihadists than all of Pakistan and Afghanistan combined, where the evil ones have carved out a fetid kingdom and built a fully functioning modern army.

A huge offensive was launched against AQAP five days ago. The Yemeni Army has thrown 20,000 troops into a wrecking machine that includes at least another 10,000 allied tribal militiamen, trained by the CIA. The Green Berets are leading this juggernaut. CIA and Special Forces drones are filling the sky with hellfire missiles, too numerous to count, in obvious close air support, in fact directed by Green Beret commanders fighting and leading on the front lines. US Navy warships are also supporting the offensive with withering fire from positions close off shore.

Local Yemeni media reports that over 100 bad guys have been killed so far. The good guys are achieving 4-1 kill ratios. In previous battles AQAP had the favorable kill ratios, thank God this has reversed since this one statistic usually determines the winner of a battle. AQAP is getting knocked back from long held territory. A knife is being thrust into the dark beast's beating heart, splling acid blood on the desert sand.

And the western press is almost completely ignoring this battle. There are US boots on the ground, fighting without Congressional permission. The US Navy is in a war. The press is giving the most important battle in the world a big yawn. It's hard for me to believe but the big yawn seems to be a result of the Yemeni underwear bomb story. Today there is a press account circulating about the size and shape of the explosive underwear that the CIA acquired from its double agent. This deadly underwear is so tailored that it would pass any normal pat down, so the story goes. I guess there is only so much copy allowed in a given media publication concerning Yemen and fitted explosive underwear takes precedence over the most important battle of our time.

The Iranian leadership is not yawning. As the anti-nuclear peace talks ramp up, Iran is making all sorts of conciliatory noise. You can be sure that the combination of America up to its neck in a regional war and no media publications covering this fact is terrifying to bad guys around the world. Muzzling the media is a specialty of CIA Director Petraeus. I am in awe of his genius. How could he know that explosive underwear trumps US Navy frigates shelling bad guys?

Green Beret in Yemen

Fundamentals: Greece says that it cannot form a unity government, therefore there will be new elections in June. The hard left is certain to win. This means Greece is almost certain to default on its debt. The entire Euro-zone is now at risk.

Long War: Press reports tell us that at least 70 US Army Special Forces troops are in Yemen, directing the Yemeni Army in a gigantic battle against Al-Qaeda. This is probably understated and there are likely many more Special Forces in country. I say this because we have news of US Navy warships moving into position off the Yemeni coast.

As I've pointed out, Al-Qaeda has an army in Yemen with main battle tanks and all the fixings. This army is being chewed up by the combined US/Yemeni Army. Combined Special Forces and CIA drone strikes are now too numerous to count and the pretense of not providing close air support seems to have been shredded. No Republican would dare criticize Obama for getting involved so heavily and overtly in this war right after AQAP was caught red-handed trying to blow up an American airliner.

I invite you to reconsider and rethink the media accounts of the CIA's foiling of this latest underwear bomb attempt. It is a strange coincidence that this whole incident occurred right before the media got wind that the US has boots on the ground in Yemen. Certainly there really was an underwear bomb attempt on the part of AQAP. But the whole thing is just way to useful to the CIA to be sheer chance.

The Syrian Civil War has spread into Lebanon. This is bad. The only thing that the CIA can do in this war is to somehow help the Free Syrian Army (FSA) purge its ranks of Al-Qaeda fighters and operatives. One way we will know if this is happening would be if suicide bomb attacks against Assad's forces diminish. When and if that happens, then the FSA has to fight and defeat Assad's army. This will take years. I have been saying that the CIA is doing nothing along these lines in Syria. Maybe I'm wrong. If I am wrong, then Iran would know that its ally (Syria) is in Langley's cross hairs. So another clue that the CIA actually is making progress purging Al-Qaeda fighters from the FSA would be if Iran bellies up to the bar in the peace talks with 5 plus 1 that are scheduled to restart in the near future. And indeed Iran made placating statements about the peace talks earlier in the week. This isn't enough to say there is CIA progress in Syria, but it is a hopeful sign. This Long War battlefield is ambiguous.

Grexit = Greek Exit from Euro-zone

Charts: Today the S&P 500 moved in and out of the key support level of 1340 about seven times. At the end of the day it punched through support and finished under this key level. What we saw then was hammering action as the bears repeatedly tested support and finally shattered it. This is not good.

Fundamentals: Greece is unable to form a government after its recent election so there will be another one in June. Polling data shows hard left parties are picking up support. The hard left in Greece is telling voters that Germany is bluffing when it says bail out money will be withdrawn if austerity measures and free market reforms are reversed. In this fantasy land Greece can go back to its old ways of living high on Germany's dime. Spain, Italy, Portugal, and the rest must step up to the plate and recommit to austerity and free market reform. If this happens convincingly, then Greece can get booted out of the Euro-zone without tearing the global economy apart. If it doesn't shake down this way, then all hell will break loose because the entire Euro-zone will be at risk.

Long War: Since the days right after 9/11 until only a few months ago America's strategy in the Long War was to try to win in a year or two, pack up its bags and go home. This is why in the early 2000s recruits for the Iraqi Army were not vetted for Al-Qaeda membership and given only a couple weeks worth of training. Back then America was just trying to shove warm bodies as rapidly as possible onto the battlefield in a blind, panicky attempt to cobble together something that sort of looked like victory and then declare peace. This policy was foolish beyond belief. One of the results is that today the Syria rebel movement is being taken over by Al-Qaeda in Iraq. There seems to be no push right now to stop AQII from having its way with the Syrian rebels because Yemen is the priority. Under the circumstances this is the right thing to do.

The CIA is not trying to win the Long War right now. At last we have the right policy. The groundwork is being laid for eventual victory many decades in the future. The global battlefield is being shaped in the Islamic world and in the halls of power in Washington DC. America is neither winning nor losing the Long War right now.

You Only Have One Friend

Charts: Last week the S&P 500 hit 1340, found support and traded out of the danger zone. The NASDAQ is finding support at 2900. If either of these support levels are breached it will probably get very ugly. The market is in a correction and you should be as nervous as a long tailed cat in a room full of rocking chairs. I am.

Fundamentals: We are staring in the face of Greece defaulting. That in itself cannot hurt the world economy. Greek bonds are owned by the ECB, Greek banks, and well protected hedge funds; everybody else has got out of Dodge a long time ago. The danger is not Greece per se but contagion to Spain and then the rest of Europe. Yield on the Spanish ten year note is over 6%, above the danger zone. This is why the long tailed cat analogy is apt. We must look to our only friend for succor.

Long War: The Yemeni Army is kicking the crap out of AQAP's army, destroying about a dozen AQAP main battle tanks on Sunday and killing 30 AQAP soldiers. Media reports tell us that CIA drones are operating in wolf packs for the first time in Yemen and are killing bad guys everywhere in southern Yemen except in and around the pitched battle between the Yemeni Army and AQAP. We are also told the Yemeni Air Force is enjoying unusual good luck in clobbering the bad guys. The CIA does not have permission to provide close air support to the Yemeni Army. We know that Petraeus asked for permission to do this, so he thought it was essential to provide drone close air support a few weeks ago. If we are to believe the media reports, then Petraeus was wrong. There is no need for drone close air support because the Yemeni Air Force is suddenly so awesome it doesn't need any help. Yeah right. CIA drones are probably protecting the Yemeni Army like a mother hen with a batch of chicks.

As an aside to the above story: The mere fact that Al-Qaeda has main battle tanks is chilling. It's not supposed to work that way. And you can see why Yemen is now the heart of the beast. The Syrian Civil War is important but Yemen is even more important.

Congress is in a twitter about a leak within the CIA revealing all the details of the CIA double agent who foiled the recent AQAP underwear bomb attempt on an American airliner. For instance, we know that the double agent was a Saudi who held British citizenship. We know his favorite color was red and he liked to take long walks on the beach (okay I made the last two items up, you get the point). Congress is outraged that somebody in the CIA leaked all this to the general public. Congress is going to spend a lot of energy with hearings and investigations to tighten up the loosey-goosey culture in Langley. And there might be hearings about why Congress wasn't informed about the operation in the first place. Petraeus is slowly twisting Congress into a knot. When he is done with them they won't know how to spell CIA.

Specific Stocks: Luxury watchmaker Fossil reported weakness in Asia and Europe. Coach is exposed to these same markets. Coach reported before Fossil and said it is seeing weakness in Europe but strength in Asia. The market is acting like Coach is just as weak in Asia as Fossil. I don't think this is true but I sold Coach after the Fossil report because I don't want to fight the tape.

For several days after the Fossil report Lulu Lemon was getting hammered, as if it faced the same problems as Fossil. But Lulu Lemon has almost no exposure to Europe or Asia. More recently LULU has stabilized and seems to be forming a basing pattern. Coach hasn't done this. In the long run Coach is an awesome company and it can be held for the long run, but you can also get retail exposure without much overseas risk with XRT, the index of American retailers.

You should buy growth stocks when they are just beginning to break out of a basing pattern and when the market is in a rally, not a correction.

Shaping the Battlefield in Washington DC

Charts: We are in the middle of a harsh correction and the S&P 500 has been punching down through support levels. 1340 is the March intraday low. If 1340 holds with strong support we might be okay. If the broad index plunges through 1340 in big volume with a bad advance/decline line, then it might get really hairy.

Fundamentals: Mark Twain said that history doesn't repeat itself, but sometimes it rhymes. The past is a rough guide for the future. The Euro-zone crisis is just like the Asian Contagion of the late 1990s. Back then a sovereign debt crisis started on the periphery of Asia in Thailand. The crisis then moved into stronger Asian countries like South Korea. These two Asian countries are like Greece and France in the current crisis.

The IMF bailed out each new Asian country as the crisis spread domino fashion. The bail outs only made the crisis worse. Finally Russia was hit. After fumbling about Russia refused to be bailed out. This slammed global financial markets but it was the end game for the crisis and markets recovered in a few months. If Russia had been bailed out, then the crisis would have kept getting worse.

Greece is probably going to default on its debt and exit the Euro-zone, taking the path of Zimbabwe, printing money (after creating a new Greek drachma) to give salary increases to civil servants, lower state pension age requirements, etc. The resulting hyperinflation will be so disastrous that the other PIIGS will probably be scared straight. This could spell the end game of the current crisis.

Even if this rosy scenario plays out in the best possible manner, it will still be very rough for the stock market over the next few months. The wild card is, of course, the price of oil. If it drops far enough, we might catch a break because China could then loosen monetary policy and kick start global growth. So, as always, we only have one friend: the CIA.

Long War: The CIA is telling the whole world about the double agent it placed in AQAP who foiled an Al-Qaeda airliner bomb plot. It is practically shouting about this hugely successful mission, which also resulted in drone strikes in Yemen which killed top Al-Qaeda leaders. Congressional watchdog committees were not informed about this clandestine operation beforehand as required by law. Congress is complaining about being kept in the dark. The fight between the CIA and Congress is very public. The American public is not stupid and can see the wisdom of keeping the blabbermouth morons in Congress in the dark about future CIA clandestine operations.

Petraeus is kicking the Congressional watchdogs in the gut real hard, setting the stage for keeping them in the dark about all future operations. Slowly, bit by bit, the CIA is going rogue (a good thing).

Remember my blog about Petraeus reaching out and grabbing assets from Army Intelligence (DIA)? Along those same lines, new rules are being crafted for US Special Forces, giving Special Forces commanders greater operational freedom, taking them out of the control of the Joint Chiefs and the old guard at the Pentagon. This looks like another Petraeus asset grab. He is very grabby and likes to pull resources away from other parts of the US military/intelligence community, stuffing them into the CIA. You may have also read that the AQAP double agent was from Saudi Intelligence. It seems that Petraeus is expanding his power base into allied Islamic Intelligence Agencies.

Charts and fundamentals are very bad. The only thing standing in the way of Armageddon is the genius of the CIA Director. It is as if we are in an Indiana Jones movie where the hero is running across a collapsing rope bridge. Will he make it to the other side in time before the bridge collapses? Maybe. It depends on how brilliant Petraeus really is.

You Do The Math

Fundamentals: We are told by the press that austerity doesn't work in the Euro-periphery, it only makes things worse. Latvia and Ireland are the only two Euro-periphery countries to actually implement austerity and serious free market reform. In 2009 GDP in Latvia contracted a startling 18%. This put the fear of God in the Latvians and they embraced the free market with both hands. Last year growth in Latvia was a robust 5%, among the strongest in the world. Ireland has one of the stronger economies in Europe. It is growing right now, it isn't growing very fast but it is growing while most of Europe is in recession. Ireland and Latvia did not have any riots or huge general strikes. Italy has had only a few riots, less than the other Euro-zone basket cases, and it has the next strongest economy among these so-called PIIGS countries. Italy has also had more free market reform than any PIIGS except Latvia and Ireland. There is a direct one to one relationship between free market reform in indebted Euro-zone countries and economic growth.

Editor's Note: Latvia is in the Euro-zone. It doesn't use the euro but it does peg its currency to the euro, which amounts to the same thing. So Greece has no excuse.

Long War: Netanyahu was eager to call for an early election. His only possible opponent is a woman named Shelly, who has no experience in the military and is weaker on defense than any other Israeli politician in history. Polls show most Israelis do not want an air strike on Iran. But they fear Shelly will make such a weak PM they would vote for Netanyahu even if it meant an unpopular war. Calling the early election seemed like a brilliant idea on Netanyahu's part.

Out of the blue, Netanyahu cancelled the early election and announced that he is instead forging an new coalition of political parties that will allow him to attack Iran. Except he is the only one talking about attacking Iran. His new coalition partners aren't saying anything like that.

So somebody just bitch slapped Netanyahu, the strongest and most hawkish Israeli PM ever. Who do you think is it was? The media would say Shelly was the one doing the bitch slapping. Shelly, the weakest politician in Israel's history. Give me a break.

Pound Sand

Fundamentals: Socialists have won elections in France and Greece. They vow to eliminate austerity. But what can they do? The socialists will go to private investors in the bond market and say, "Loan us money so we can raise the retirement age on our state pensions." Private investors will refuse. So the socialists will make the same request to the ECB. The ECB will say, "Pound sand!" Then the socialists can either go back to their voters and actually implement austerity and free market reform or they can leave the Euro-zone. Leaving the Euro-zone will mean instant hyper-inflation a la Zimbabwe.

So long as the stock market sees the above scenario playing out with no major countries taking the Zimbabwe option, we might be okay.

Long War: This is what I think Petraeus is doing: He is shaping the global battlefield in preparation for future action. He is not trying to win the Long War in the near future, but rather move chess pieces around so that in a few years there can be a push to start rolling back the bad guys.

This shaping exercise seems to involve massive effort in one or two key spots and letting things slide elsewhere. For instance, we saw the big national and super-national armies of Kenya, Ethiopia, and the African Union pour everything they had into a mighty campaign to destroy the conventional fighting capabilities of Al-Shabab in North Africa. But there hasn't been much effort to rein in AQIM in Mali and Nigeria, where the bad guys are spreading unchecked. However they are spreading away from the center of the Long War, expanding out into the periphery, the edge of northern and central Africa. So the African part of the Long War is not smaller, it just has a different (better) shape.

Now we see massive effort poured into Yemen. Only yesterday an Al-Qaeda leader with a $5 million bounty on his head was killed by CIA drones. We are told this bad guy was plotting an attack on America. Along with massive drone action we are seeing huge battles in Yemen similar to the huge battles that dislodged Al-Shabab in Somalia.

At the same time the drone campaign has ramped up again in the Pak tribal lands.

Pressure is being applied at just two places. This will change the shape of the global battlefield which forms a gigantic arc starting with the ex-Soviet countries in central Asia through the Mideast and down into Africa. This evolving "new shape" seems to involve punching holes in the arc, cutting it up into little arcs.

Correction begins

Charts: The S&P 500 smashed downward through its 50-day moving average today. Chartists will say that the market is now in a correction. While they are probably right we should be alert to the possibility that the market is entering a period of sideways movement. There are some ugly chart indicators smacking us in the face but there is one bright spot: correlation between stocks has dissipated. It is a stock pickers market but a very challenging one.

Fundamentals: Lately I've been talking about the super productivity of corporate America. Today the Journal ran an article that says productivity has peaked and is starting to come down. This means, once again, we have only one hope: that our good friends at Langley can straighten out the Long War and bring oil prices down. Which means we could move into consumer stocks even more than we already have.

Long War: There are more Al-Qaeda operatives in Yemen than in Afghanistan and Pakistan combined. Yemen is the true heart of the evil beast. The CIA has nearly finished purging the Yemeni Army of bad guys. Pro-American Yemeni President Hadi is establishing control over his armed forces and the war is being taken to the bad guys. The Western Press is reporting that Yemeni warplanes are making strike after strike. But it seems more likely that these air strikes are CIA drones firing Raytheon Hellfire missiles. This is probably happening while the Yemeni Air Force has an airplane or two loitering about, providing a plausible explanation for the aerial assault to the Western press. I am encouraged by the press management style of the new CIA Director.

AQAP is unable to spread out of Yemen and into Africa by way of Somalia because the CIA has destroyed Al-Shabab's conventional force structure and reduced the Somali bad guys to terrorists who have limited ability to seize and hold ground. This means AQAP and AQIM cannot combine forces through a kind of land/sea bridge. So there is good long term strategic planning and execution. AQIM is, however, spreading out in Africa and has its own kingdom now in Mali.

In Iran the Ayatollah seems to be gaining power over Ahmadinejad. This is bad.

Coincidence? I Don't Think So

Charts: In 2011 the S&P 500 closed almost exactly flat after a roller coaster ride of savage volatility. The only other time we had a chart pattern like that was in 1948 when the broad index closed almost exactly flat after the same sort of roller coaster ride. The 1950s saw one of the greatest bull markets in history. The 50s were the golden age of the CIA. Never before or since has Langley had such earth shaking power.

Fundamentals: The most recent GDP data shows the US economy growing at a very weak 2.2%. Strip out inventory distortions and growth was only 1.5%. But corporate profit as a percent of GDP continues to hit new all time highs. In the 1930s corporate profit as a percent of GDP was also very high. Why? Because the loose monetary policies of the 1920s made corporate America fat, happy and stupid. When the Great Depression hit there was plenty of room to tighten up. In the 1980s, 1990s and early 2000s we also had overly loose monetary policy. When the Great Recession hit there were over 2 1/2 decades of fat, happy, and stupid to work off. Corporations keep getting more efficient and profitable because they are hacking off an enormous backlog of fat, happy and stupid business practices.

Long War: Israeli PM Netanyahu is being publicly attacked by the former head of Mossad, the former head of Israeli Internal Security, the former PM, the current top ranking Israeli military officer, and (not publicly) the current head of Mossad. All these powerful Israelis are saying the Israeli Air Force must not bomb Iran. It is a true revolt and more than the PM can counter.

Netanyahu is so weakened politically that he is calling for early elections, where the issue will be whether or not to attack Iran. The voters will probably boot him out and if so there will be no Israeli attack on Iran. And the world will be saved from a disastrous war that would clobber the stock market besides killing hundreds of thousands of people.

Do you think five of the most powerful Israelis spontaneously decided to rise up against the PM out of the blue? Do you think the anti-Israeli CIA actions that I talked about in my last couple blogs are a coincidence to this Netanyahu backlash? Do you think it is a coincidence that the CIA is now run by the most anti-Israeli director to have ever existed? Do you think it is a coincidence that Director Petraeus has demonstrated an ability to reach out and transform internal politics/ tribal structures within Middle Eastern countries?

The Long War is not WW II. And Vietnam was not WW II. Massive conventional firepower, the shock and awe we saw at the start of the first Gulf War, is not the answer to Long War battles. The answer is spooks not nukes.

CIA Director Petraeus

Long War: When he was an Army general, Petraeus left bigger fingerprints than he does now. Therefore it is easier to analyze this part of his career and gain an insight into what he is doing now. Consider the Sunni Awakening Movement in Iraq.

The Baker report had just come out and the Joint Chiefs in the Pentagon were ready to pull the plug in Iraq and create a Vietnam defeat that would have been catastrophic for long term world peace and the global economy. Against this backdrop President Bush and Gen. Petraeus built a parallel Joint Chiefs organization inside the White house and launched the Awakening Movement strategy against the will of the Pentagon.

Petraeus reached into the bowels of Iraq's Sunni tribal structure, using Egyptian Intelligence as his instrument of persuasion. He convinced the Sunni tribal chieftains to declare war on Al-Qaeda. He guided that war from the White house just like Ollie North did for Reagan. He won that war within a war.

Now consider his ability as a US Army general in Iraq to muzzle the press. We won't go into details as to how he did it but the press was muzzled and this played a big role in turning the Iraq War around.

Okay, how does that help us today? Yemeni tribesmen are rising up, banding into effective militias, and attacking Al-Qaeda in increasing numbers. The pattern is similar to the Sunni Awakening Movement. The Yemeni press is reporting about 50 times more CIA drone strikes in Yemen that the Western press is reporting. Again to save space we will state that the Yemeni Press is more accurate than the Western press without going into details. This smells like a Petraeus press muzzling maneuver.

Looking For Fingerprints

Long War: Suicide bomber attacks against Assad's Syrian Army are occuring in a steady drumbeat. These terror strikes come straight from Al-Qaeda. Bad guys are attacking bad guys. The Free Syria Army is unable to hive off the jihadist elements within its own ranks. These elements are responsible for the slow destruction of the ceasefire. The ceasefire will probably collapse and the UN will pull out its personnel.

If the Syria Civil War returns to full strength then it is not only imperative the Free Syria Army win, it is also imperative that its Al-Qaeda link be severed. Giving the Syrian rebels the weapons, training, and leadership necessary to win will go a long way to blowing Al-Qaeda out of the tub. The reason why there is a jihadist link at all is because the Free Syria Army is not getting enough help from the Western alliance.

Official American policy on Syria is to apply sanctions to Assad's regime and no covert action will be taken. Our job, as always, is to look for fingerprints in Syria, to see how the CIA is violating offcial American policy.

Ah-ha! Do I spot one? Turkey is building large permanent refugee camps for displaced Syrians inside its borders, well away from the combat; as if Turkey is hunkering down for a long guerrilla war.

Do You See Fingerprints?

Charts: The market is in a technical rally. The charts are saying the correction is over. Sometimes charts are wrong.

Fundamentals: Corporate profits as a percent of GDP are at an all time high. The were at about this level in the 1930s. So these are the two periods where corporate profits could grow without the economy growing very much. Productivity increases are not yet peaking. Corporate America keeps getting more efficient. This is also one of the reasons why employment is not increasing.

Long War: The CIA just got bigger. CIA Director Petraeus reached out, grabbed the US Army's intelligence arm (which is called DIA), and said: "You are now part of the CIA." The media is reporting this story as the DIA is being reorganized to resemble the CIA's Clandestine Services division. Yeah right. Meet your new boss. You army maggots are going to learn the CIA way or its the highway. Next Petraeus will grab US Army Special Forces.

Petraeus got the White house to liberalize rules of engagement for drone warfare in Yemen. Petraeus asked for but did not get the right to use drones in close air support of pro-American Yemeni troops. He will probably use the drones for close air support anyway, regardless of whether or not he has permission, because Yemen is the Wild West.

The highest ranking Israeli military officer is saying Iran is not making a nuclear weapon and has no actual weapons program, only an uranium enrichment program. This directly contradicts Israeli PM Netanyahu and is actually close to insubordination, throwing Israel's top leadership into extreme conflict because the PM couldn't order an air strike against Iran if his ranking military officers disagree that such a strike is necessary. We must ask the obvious question: Does this incident look like it has CIA fingerprints on it? You tell me.

CIA vs Israel?

Charts: On Friday the S&P 500 closed exactly at its 50-day moving average. Since the correction started a couple weeks ago the broad index had been swinging rapidly over and under the 50-day line. By settling exactly on the battlefield number the charts were saying the next big move would be technically significant. Today we had a monster down day. The charts then are saying weakness breeds weakness and more loses are likely.

Fundamentals: Southern Europe is contracting faster than expected. The multi-trillion dollar bail-out funds owned by the EU and IMF are probably going to be tapped by Spain. The markets are beginning to fear that Germany won't allow another bail-out of a Periphery country. The markets are most likely wrong and Germany will allow Spain to get bailed-out, but not without a lot of kicking and screaming. Germany's kicking and screaming might be enough to cause global economic damage.

Long War: Egypt is saying it will break its fuel contract with Israel. Pipeline deliveries will shut down shortly. Jihadist bombers in the Sinai had over the past year shut down 50% of the pipelines leading from Egypt to Israel already. Whether the gas was flowing or not, breaking this contract is a big deal because this commercial contract is actually part of the Camp David Accords and forms the backbone of the peace treaty that ended the Arab-Israeli wars.

The above news item, on the surface, seems to be very bad news. And almost certainly the surface level analysis is right and this probably really is bad news. An alternate analysis occurs to me that would put it in a different light. Even though the alternative is probably wrong let me throw it out for grins.

We know from his public statements as a US Army general that CIA Director Petraeus is very hostile to Israel, more hardcore on this position than any other US general. It seems strange that the CIA is allowing terrorists in the Sinai in the first place. With its ability to marshal the resources of Egyptian intelligence it had always been able to clear the Sinai of anti-Israeli terrorists, until recently.

And the way the Egyptian gas contract was broken was strange. Egyptian gas company executives made the call, not anybody actually in the Egyptian government.

And then two months ago the Iranian government claims that it captured a large number of Israeli assassins, hinting that it was part of the ring of assassins who had killed so many Iranian nuclear scientists. And then the Iranians shut up publicly about their big haul, like they maybe actually had something and realized they needed to keep their mouths shut.

I keep getting this weird feeling that Petraeus is sticking it to Israel.

Bumpy Ride Ahead

Charts: The S&P 500's 50-day moving average is 1378. The broad index closed below the 50-day line today. The market is therefore in a correction.

Fundamentals: The European Central Bank pumped $1.3 trillion into European private banks at the beginning of the year with the understanding they would buy Euro-periphery government bonds, which they did. That $1.3 trillion is now gone and the Euro debt problem is once again out of control. The ECB has to pump another trillion dollars worth of cheap loans into its banks or all hell will break loose. The ECB will only act once hell starts breaking loose, not before. Buckle up, its going to be a bumpy ride.

Long War: The UN has hammered out an extensive monitoring mission with Assad's government in Syria. Now the UN is talking with the rebels to get them to sign on. The rebels have to start policing themselves and purge Al-Qaeda militants from their ranks for the ceasefire to keep holding. I'm not going to guess whether that is possible or not. Al-Qaeda attacks within Syria seem to be going down. The ceasefire is holding by the skin of its teeth.

The new rebel government in Mali is not tackling the Kingdom of Al-Qaeda that has sprung up in its backyard, despite promising the Western alliance that it would do so. It is intolerable for Al-Qaeda to build sovereign nation-states and not face withering attacks. A CIA drone campaign will someday have to be launched in Mali.

All these major Long War issues are CIA problems, in other words there is nothing the Pentagon can do about them. I keep thinking there isn't enough CIA to go around. And then I remember how CIA Director Petraeus launched the Sunni Awakening Movement in Iraq, the most brilliant military campaign in the Long War so far. So there is a sort of race between Petraeus' brilliance and the lack of resources he has been given.

Al-Qaeda in Syria

Long War: It is always bad news when a key Long War turning point receives attention from voters in Europe and America. Al-Qaeda is always better at manipulating public opinion than the leaders of NATO countries. The western press is rabidly covering the ceasefire violations on the part of the Syrian Army but not giving context and analysis. In media accounts civilian and rebel Free Syrian Army deaths are being trumpeted but not the terror strikes that are being inflicted on Assad's Syrian Army and are triggering the violence.

There are bad guys intermingled with good guys in the Syrian rebel movement and it seems like Al-Qaeda is trying to break the ceasefire by sending individual bombers into Assad's ranks. Al-Qaeda is goading Assad's soldiers into firing into rebel strongholds.

NATO leaders are apparently aware of this dynamic and are pushing forward with a full UN monitoring mission, saying that the ceasefire is holding although fighting is slowly ramping back up. Also, we see that Russia is saying it will hold back weapons sales to Syria. Russia supplies Assad with 90% of his weapons. China too is putting pressure on Assad. All UN Security Council members therefore are putting their weight behind the ceasefire. This is further proof that Al-Qaeda is the main international power trying to scuttle the ceasefire because it is the only common enemy that can unite Russia and China to a US position.

Israel is certainly not involved in any militant activity in Syria, but it is interesting to note that it would like to see the Iranian peace talks collapse and by extension the Syrian ceasefire breaking as well. So Al-Qaeda and Israel would like to see the same thing. The extreme left and the extreme right always end up looking like each other.

Israel Has Big Problems

Long War: Israel is opening up private Palestinian land for settlement in the West Bank, probably scuttling the latest round of Israeli/Palestinian peace talks. Then Israel says it still might bomb Iran even though peace talks with the American led 5 plus 1 group of big powers are ongoing. The market is taking some notice of Israel's bellicosity and we aren't seeing as big a drop in oil prices as we should after Iran caved in day one of the big talks.
By kicking Obama so hard in the gut, Israel is taking an enormous gamble that not only will Romney win the election, but that he will switch over from Obama's anti-Israeli policies to mindless pro-Israeli policies. Romney would have to fire CIA Director Petraeus to make that switch.
We have to understand what Israel (under its current leadership) wants out of the current Iranian crisis. Israel does not want a peace treaty between 5 plus 1 and Iran to materialize. What Israel wants is for America to destroy Iran in a large conventional war. The Israeli Air Force, by itself, can do very little harm to the Iranian nuclear development program. All the Israeli Air Force is good for is starting a war that the American Air Force would then have to win.
Netanyahu may be underestimating Obama, or overestimating himself. Either way, he is pretty whacked out right now. The reason? A UN general resolution is gathering steam that will recognize an independent Palestinian state. When it passes the UN General Assembly, Israel is going to have to decide once and for all if it wants a two state solution or another war.

Syria is Everything

Charts: The S&P 500 is still mired in a correction and the 50-day line continues to throw up resistance. Apple dropped 4% today, reflecting overall weak leadership.

Fundamentals: The earning season is off to a good start, 76% of S&P 500 companies have beat analysts estimates so far.

Long War: The Walter Cronkite effect is in full swing. This is when the media portrays Long War victories as defeats, hearkening back to the Vietnam era of spin distortion. The Afghan Taliban and its allies mounted the largest attack on the capital city of Kabul in years. Yes, they paralyzed the city for a while but the bad guys were totally routed. 35 dead bad guys vs. 10 dead good guys. Almost no civilian casualties. When the Parliament building was attacked the politicians inside grabbed AK47s, got on the rooftop, and started killing Taliban and Haqqani fighters (studly). Afghan Special Forces easily outflanked the bad guys in an 18 hour long battle with very little NATO help.

A few days ago I said the good guys were losing in Yemen, but that battle has turned around and now Al-Qaeda is losing. America seems to have successfully isolated the bad part of the Yemeni Army and the good Yemeni Army is in full combat mode.

Sudan and South Sudan are inching toward a total war but Egypt is throwing a full court press on the diplomatic front and seems to be making headway. It seems to me heavy CIA activity nowadays comes in the guise of pro-US Arab powers taking action. Something is holding the two armies back, but this is a dangerous LW flashpoint.

The ceasefire in Syria is holding even though western media reports say that it is not (Walter Cronkite effect). Al jeezera reports that there are two confirmed deaths in the last day of fighting in Syria. Before the ceasefire there were 100 deaths a day, not two. UN monitors are currently taking up positions. This is what a successful ceasefire in the Mideast looks like. Syria is the epicenter of the Long War right now. The ceasefire holding is good news.

Iran Caves. Everything Depends on Syria

Long War: Iran buckled at the anti-nuclear talks over the weekend. The media is portraying the talks as mildly positive to horrible. Israel is saying the talks are a disaster. The Republicans will throw their weight behind Israel and play obstructionist. The market may react negatively because of media spin. The truth is Iran caved.

The lead Iranian negotiator quoted Ayatollah Khamenei's fatwa against nuclear weapons during the talks. A version of the fatwa was turned into a flag and hung over the one-day talks. Iran was willing to bring up the subject of restrictions on uranium enrichment at 20%. So Iran is starting this massive diplomatic process by saying it is a sin to make nuclear weapons. And it also says it will at least keep talking about restrictions on enrichment. Without unrestricted enrichment Iran cannot make nuclear weapons. Those are big concessions for day one.

The media will say that this round of talks is over and another round will begin in one month in Iraq. That isn't true, the talks will be ongoing from now until the formal and public meeting in Baghdad in four weeks. Everything could fall apart by then and maybe nothing will come of the weekend's positive news, but it is encouraging.

If Iran were to truly cave and agree to stop uranium enrichment at 5%, then the oil sanctions against Iran would come down. There are tankers full of Iranian oil sitting in the Gulf. Iranian oil production is still running at high capacity. Oil prices would then crash and the global economy would get a shot in the arm.

Obviously this is a pretty rosy scenario. It looks good right now but Iran would probably turn hard line overnight if the ceasefire in Syria doesn't hold. Therefore that is the forward looking indicator for the Iran crisis: The ceasefire holding in Syria.

Correction Continues

Charts: The S&P 500 plunged back down through its 50-day moving average today. This means the correction is ongoing. Volatility is back to record highs, which is bearish. The huge rally that began in the fall first saw coiling behavior from the index, or we could call this a wedge pattern. Generally speaking whichever way a wedge breaks to after it has narrowed to a sharp point is the direction the market will go in the medium term (some months). Right now copper has formed a lengthy wedge pattern and seems to be breaking to the downside. Copper is more than just a metal, it is an important technical indicator. So it is bad that it has broken down out of its wedge.

Fundamentals: China's GDP growth, while still high at about 8%, has slowed sharply. This is why the market sold off today. However the Chinese GDP report also showed that Chinese loans grew sharply, setting up the Great Dragon for economic growth later in the year when the result of all those loans will be felt on the street. What this means is that we are back to the price of oil being the key factor for the global economy. If oil comes down, then that sharp uptick in Chinese loans will spell further growth for the world economy. And the price of oil is contingent on the anti-nuclear talks with Iran and 5 plus 1 that just started in Turkey.

Long War: Stay tuned over the weekend for my analysis of the Iranian talks.

Bad News is Good

Charts: The S&P 500 smashed upward through its 50-day moving average. The 50-day line was the battleground technical indicator for this correction. If the index finds support there and/or trades above that line, then the correction is over.

Fundamentals: You, me and all equity investors hunger for QE like a wino craves alcohol. Yesterday the ECB hinted it was ready for QE2 and the Fed hinted it was ready for QE3. Today economic data came in weak, among other weak data points jobless claims ticked up. If the data is bad, then the winos (you and me) get a big fat bottle of Mad Dog 20/20. Yippee!

Long War: There is a good Yemeni Army (anti-jihadist) and a bad Yemeni Army (pro-jihadist). The two are somewhat separate but to a degree still intermingled. When the good Yemeni Army goes to battle with Al-Qaeda it finds military planes have been sabotaged by soldiers from within its own ranks. America and the CIA have been working heroically to hive off the bad from the good within the Yemeni Army. It seems to be working. Yemeni war planes are flying again and are taking out tanks that the bad Yemeni Army gave to Al-Qaeda. The weight of the renewed aerial assault is now taking its toil on the jihadis. CIA drones are active and working in concert with the good Yemenis.

The new leader of Mali says he will begin a war soon against AQIM and try to destroy the Kingdom of Al-Qaeda that has sprung up in his back yard. The rebel groups that worked with AQIM to seize half the country (an area bigger than France) have disavowed their jihadist partner and promised various levels of support or neutrality in the coming war. CIA fingerprints in all this are glaringly obvious. Why would rebel leaders sell out their partner AQIM? Clearly they are being threatened in a convincing manner.

The Syrian Army is honoring a UN ceasefire accord as talks begin with Iran and the US led group called 5 plus 1, so Iran is reining Assad in, at least for now. Ahmadinejad wants to play ball with 5 plus 1 and the Ayatollah does not. The Ayatollah is not necessarily more powerful than Ahmadinejad within Iran. The best way to gauge Ahmadinejad's strength is to listen to what he says when he is hauled in front of the Iranian Parliament. Last time this happened he mocked the members of Parliament for having fake college degrees (which I guess many of them have). Licking its wounds after this tongue lashing, Parliament passed a new law supposedly giving it the power to easily impeach the PM Ahmadinejad. If it tries and fails to impeach him, the Ayatollah is in big trouble. Have you noticed how assassination attempts from Mossad and CIA have stopped? The good guys are trying to help the PM.

A Perfect Storm

Charts: The S&P 500 smashed downward through its 50-day moving today. Selling accelerated once this key technical level was breached. Volatility has skyrocketed. Yields on Spanish and Italian debt are screaming upward, threatening the Euro-zone.

Fundamentals: The Euro-debt problem was smoothed over in recent months when the ECB injected $1.3 trillion into European banks. That was the Euro-zone's QE1. The market is now demanding a Euro-zone QE2. Of course this is solving a debt problem with more debt. The only way this will work is if the extra debt buys time for free market reforms to be implemented. Right now the Euro-zone has austerity fatigue and free market reforms are linked to austerity. Amazingly, America also has austerity fatigue, even though the US has not implemented any austerity measures.

Long War: The situation in Mali has gotten worse. AQIM (Al-Qaeda North Africa) has carved out a kingdom for itself in the strife torn African nation. The AU army will have to start and win a new war to eliminate this new jihadist nation-state. The AU depends on American funding to wage war. This is a problem. Under the best scenario it will take years to win this new war if it ever occurs. Give peace a chance is not an option, not when you are dealing with Al-Qaeda.

AQAP (Al-Qaeda Arabian Peninsula) continues to defeat the Yemeni Army in open warfare and continues to sport high kill ratios. The Yemeni Army is split into two camps: pro-Al-Qaeda and anti-Al-Qaeda. Probably for this reason we are seeing tanks and other heavy weapons move from the Yemeni Army arsenal to Al-Qaeda. Thus we should not call AQAP's military force a militia, but a true army. There is massive American involvement in Yemen.

A lot of effort was put into defeating Al-Shabab in Somalia last year. This created a strategic buffer separating AQAP and AQIM. We are seeing AQIM move into Nigeria to strengthen its affiliate Boko Haram. And indeed Boko Haram is tearing apart its host country. Probably AQIM will try to move into Somalia once it has firmed up its gains in the other parts of North Africa. If Al-Shabab were to re-emerge it would be very bad.

The Long War has two halves: Iran and Al-Qaeda. The Syrian War is part of the Iranian conflict. And that part of the LW is not going very well.

We are in a period where the good guys are losing the LW. This is a century long conflict, so the tides of war will ebb and flow.

Correction

Charts: The market has gone from rally to correction. This is the first correction of 2012. There is no way to know if this correction will force the market down a mere 3-5% or if it will morph into a full-fledged bear.

In previous blogs I have said a brand new bull market was born in October 2011. For a while the charts were saying a new bull market had emerged. A few weeks ago the charts started signaling a different message. The downturn in 2011 was a correction, not a bear market. The current bull market is 3 years old. It is prone to 17-20%corrections. There have been two that big so far.

It is also prone to powerful rallies in paper thin volume. The most recent rally was like that. And this is one of the technical indicators that tells us we are in the same old bull market. Others include large caps outperforming small caps and identical leadership before and after the 2011 downturn. Example: Apple and Priceline.

The most important technical indicator right now is Spanish bond yields.

Fundamentals: Bond vigilantes are tearing into Spain, recreating the same problems we faced with Greece. America's latest jobs report was horrible. Economic data from China is mixed. The root of all these problems is high oil prices. We could see central banks here and everywhere loosening monetary policy to juice the world economy. This might jolt stocks upward but it would also put upward pressure on oil prices if there isn't a Long War breakthrough with Iran. This might not lead to generalized inflation. It might not even be that great for oil companies if consumption goes down.

Long War: Al Qaeda is winning in Yemen. The Yemeni Army is by and large losing when it enters battle with Al Qaeda. America is stepping up its efforts there and seems to be making brutal leadership changes inside the Yemeni government. Despite the bad news the fact that the US is apparently able to sack Yemeni leaders is encouraging. Drone strikes are increasing and will eventually start hurting the bad guys. Still, I get the Willies when the bad guys have higher kill ratios than the good guys.

The government of Mali was overthrown recently. AQIM (Al Qaeda North Africa) is a major player in the new Mali and has already grabbed several villages for itself and its affiliates. France is sending Special Forces there. The African Union is in the early stages of mobilizing against the new Mali. Bear in mind the AU Army has pretty much defeated Al-Shabab in Somalia and Al-Shabab was very tough, equal to AQIM. It is possible the new Mali won't want to screw with the AU and will break ranks with AQIM.

Sudan and South Sudan are on the verge of full-fledged war, although peace talks are ongoing and total war has not yet broken out. At one point Sudan leader Bashir worked with the CIA and it probably has some hooks in him.

The big LW battlefield is Syria. If Assad is overthrown it would mean Iran's overseas military empire is doomed, this would break Iran's power to jack oil prices, which is everything to us. There is supposed to be a UN mandated ceasefire in a few days. The US says the rebels will be armed if Assad breaks the ceasefire. This would mark the start of a whole new war and obviously the good guys have to win.

I'm sure you've noticed that every one of these hotspots has no chance of ever seeing USMC boots on the ground. They are all owned 100% by the CIA. Is Langley overstretched?

In a previous blog I mentioned that the CIA and NSA are obligated by the Camp David Accord to monitor and react to all militant activity in Egypt's Sinai peninsula. Entrenched jihadist militias are now routinely launching rockets from Sinai into Israel. Oil pipelines leading from Egypt into Israel have been bombed 48 times. So Langley has abandoned an old (but very important) outpost. Obviously then it is overstretched.

But then CIA Director Petraeus is the greatest military mind since George Patton.

All Eyes on Iran

Charts: The price action for the S&P 500 isn't that bad despite the current sell-off but the volume pattern is not good. Over the past couple weeks we have seen big volume on down days and weaker volume on up days, a sign that hedge funds are bailing out. Most chartists then would say we have either entered a correction or the rally is under significant pressure. At the beginning of a correction all we can ever say is that it could turn into a bear market or it could be mild and represent a buying opportunity.

Fundamentals: The Euro-zone crisis is flaring up and the price of oil is elevated. We can point to other problems too, like the slow down in China, but all economic sins come from the original sin: the threat of Israel bombing Iran and the subsequent increase in energy costs. This is the source of all global economic weakness. So, oh joy, we need to focus on the Long War.

Long War: In Yemen, Al-Qaeda at last has an army, not a militia. When the American backed Yemeni Army attacks the Kingdom of Al-Qaeda in southern Yemen it is routinely defeated by the Al-Qaeda army and kill ratios are about 2-1 favoring the bad guys. This has never happened before in the Long War. The CIA now has a very robust drone campaign in Yemen that is as big as the campaign in the Pak tribal lands. Getting very little attention is the fact that Iran has carved out a puppet state in northern Yemen.

The US says Saudi Arabia and Qatar will start arming the Free Syrian Army if Assad doesn't roll over and surrender at once. Assad will not roll over. What the US is actually saying is it will soon unleash the CIA in Syria. First of all, it is disconcerting that the CIA is currently leashed in this, the most important, LW battlefield. What's up with that? Syria is of course the primary puppet government of Iran and if the good guys can't take out Assad, we're screwed.

In Iran itself, Ahmadinejad is locked in a political struggle with the Ayatollah. If the US and its allies are able to keep making the sanctions against Iran bite and if they can start dismantling Iran's puppets, then Ahmadinejad will allow UN weapons inspectors into his country and essentially capitulate to Western demands on nuclear weapons development. The Ayatollah will see his country go up in flames rather than play ball with the West. So Ahmadinejad is now a good bad guy. And winning the war in Syria is key to everything: undermining the Ayatollah, putting Ahmadinejad in charge of Iran, starting peace talks which makes it impossible for Israel to attack Iran, which will knock down the price of oil, which will take pressure off the Euro-zone, which will cause Italian and Spansih bond yields to go down, which will cause the stock market rally to resume.

So guess what? This all is dependent on the White House taking the leash off the CIA, a leash that should never be there in the first place. The leash will remain tight if Obama thinks he can coast to election day without doing anything bold; this is his natural inclination. The leash will come off if Obama thinks he can't wait until after the election. As always, Obama knows what the he should do, he is not stupid like Jimmy Carter. Obama is smart, but is he courageous? Time will tell.

Specific Stocks

Charts: Correlation between individual stocks has plunged in the past couple months from 80% to 15%. For the first time in years it is a stock pickers market. Support for the S&P 500 is at 1308 and resistance is at 1320. We want the index to bounce between these levels and consolidate. If that happens, then it will remain a stock pickers market.

Wabtec (WAB): This company makes locomotives, brakes for rail cars, and about 100 other rail products. It makes a computerized safety system linked to GPS satellites that can make rail accidents virtually impossible. American law mandates that this system will become universal here. Other countries will probably do the same. Competition will emerge in time, but WAB holds the lead in automated rail safety for now. It competes with Caterpillar in rebuilding rail cars. Essentially WAB is the arms merchant to the rail industry.

Komatsu (KMTUY) and Caterpillar (CAT): These two make expensive mining and construction equipment. Their stuff costs more but last longer and doesn't break down. As mineral deposits become harder to access mining projects will get bigger and more expensive, shutting out small miners who tend to buy cheap gear. Komatsu is taking market share away from Caterpillar in China. KMTUY leads in robotic ore hauling trucks. This is the wave of the future. CAT, however has its own advantages with a superior dealer network and the ability to rebuild equipment.

Coach (COH): In a way Coach is similar to the two companies above. It makes women's hand bags that have heavier stitching and last longer than higher end stuff from Italy. Coach patiently took ten years to conquer the Japanese market, creating new styles that were specific to Japan. Now it is conquering China. It is moving into men's hand bags in Asia. In America there is a cultural prejudice about men carrying purses, not so in Asia.

Lincoln Electric (LECO): Obama says he wants to spend new money on infrastructure. At some point local, state or federal governments are going to have to address real infrastructure needs and stop all this nonsense about high speed rail, solar power, and magic unicorns that sprinkle moon dust on congested highways to clear traffic jams. Most American bridges were built using conventional welding techniques and welding rod material. They should have been built using high impact welds that can withstand constant pounding. This is why bridges are collapsing. Since this does not involve unicorns and moon dust, politicians don't like rewelding almost every bridge in America, but necessity will some day force this to happen. LECO has the lion's share of the gear and material needed to make this happen.

Lululemon (LULU): This company makes expensive yoga attire. I ask moderate income women in my yoga class how they can afford this pricey stuff. When they practice yoga at home old sweats are fine, but when they go to class they have to look awesome. Therefore, they sacrifice somewhere else to buy this stuff. And LULU clothes are very flattering. This is a Canadian company and in its native land LULU clothes are no longer just for yoga, but for everyday wear as well. It is now expanding into America and Australia, where the culture is the same as Canada, so they don't have to change their business model or culture. If it does as well in its new turf as it did in the great white north, then LULU will expand 10 fold.

Monsanto (MON): For a while the number one seed company in the world had trouble with its triple staxx concept, where it stuffed more genetically engineered material into seeds than its competitors. It could create more traits than anybody else but yields went down as the genome of the plants in question cried in protest over this gross manipulation. But recently we have learned that Doctor Frankenstein (MON) is building better monsters. It has a drought resistant corn seed that should sweep Africa by storm.

A French court just said certain laws against GMO seeds are illegal. MON says it won't sell these seeds in France even if it is now legal. I was impressed. Stick to the emerging world where nobody cares about Frankenfood.

Dupont (DD): This is MON's main competitor. It is moving away from the industrial chemical business and into ag products. Often when large cap companies transform themselves like this they steadily go up and for a long time.

Phillip Morris International (PM): When I was in Indonesia I researched PM and learned first hand that it is clobbering local cigarette makers. What if people stop smoking? PM has more research on anti-smoking technology than anybody. It will get the whole world (except the US) hooked on ciggies and then sell them the stuff that will cure their addiction. Brilliant.

Several Mice Are Roaring

Charts: As growth investors, what we want to see is apathy, where volatility is so low nobody cares about the stock market. When this happens correlation between stocks disappear and at long last we have a stock pickers market. The first hints of apathy are emerging.

Fundamentals: The European Central Bank is funneling billions into European banks, who in turn are buying Italian and Spanish debt. True central bank QE would have the ECB buying the bonds directly; in that case there is no limit to how many bonds it could buy. But European banks will soon hit a wall and the purchases will have to stop. Italy needs to be well on the path to free market reform when that happens or the global stock rally will reverse. So in future blogs we will follow Italy's restructuring progress, which is so far going better than I predicted. The thing to remember is that Italy is not a giant Greece. Italy has powerhouse multi-national exporters like Fiat and Gucci.

Long War: The USS Abraham Lincoln aircraft carrier battle group has been joined by small British and French flotillas. This armada is now in the Strait of Hormuz, facing down the Iranian Revolutionary Guard Navy. Right before the armada sailed into Hormuz China told Iran that if the bad guys were to close the strait, then the Great Dragon would consider this an assault on "many nations." So Iran is crossing swords with two superpowers. What has pushed China and America into such a bold stance?

The great powers are acting to preclude an Israeli attack on Iran. Israel is a mouse roaring.

CIA drone strikes have resumed at a normal pace (maybe one or two strikes a week). The peace talks between America and the Taliban are taking shape and drone strikes will be used as a negotiating tool. And we are told the most recent drone strike took out Al-Qaeda operatives, not Taliban; which seems to indicate that peace talk drone strikes are already happening. Another interesting aspect of these talks is crystallizing, Qatar is not so much acting as a host to these talks, but actually running them in all significant details. Karzai's government in Afghanistan is lobbying Qatar for a position at the talks. Qatar seems to be deciding who represents the Taliban. The US has agreed to release 5 Gitmo detainees as a goodwill gesture to the Taliban to get the talks started. The detainees are being delivered to Qatar and the tiny emirate will do with them as it wishes. Qatar is a mouse roaring.

Turkey is too big to be a mouse. Let's call it a large rat. As the government of Iraq tries to rebuild itself as a Shiite dictatorship aligned with Iran, Turkey is subtly threatening to invade Iraq and pressure Maliki's government in other ways. Turkey is a roaring rat.

Going Rogue Is So Good

Charts: The euro reached an all-time low against the New Zealand dollar. The euro is not down nearly as much against the US dollar. The New Zealand dollar is a carry trade destination and the US dollar is not. So there must be at least a bit of a euro carry trade going on. Maybe a full blown euro carry trade will evolve. This would be very good news (when and if it happens) and means we should pile into emerging market debt and stocks.

Long War: America's highest ranking military officer is now in Israel, trying to talk the Israelis into not attacking Iran. Enormous pressure is being brought to bear against the Jewish state. Promises are being made. There are discussions about establishing "red lines," i.e. certain Iranian actions will automatically trigger a US attack on the bad guys. This new policy would be simliar to the red lines concerning North Korea attacking South Korea or China attacking Taiwan. Israel has totally gone rogue and is pushing the superpower into a very aggressive stance. If Mossad and the CIA are going rogue together it is bullish for stocks.

Is CIA Director Petraeus the kind of guy who would go rogue? Consider the Iraqi surge, the offensive he masterminded that won the Iraq War a few years ago. The Joint Chief of Staff was 100% opposed to the surge at first because it involved arming, training, and leading Sunni tribes from Iraq's interior against Al-Qaeda. These tribes were fighting for Al-Qaeda right before the surge and needed to switch sides, a tall order. Nobody at the Pentagon except Petraeus thought the surge would work. President Bush and Petraeus created a parallel Joint Chief structure to implement this strategy, completely bypassing the establsihed chain of command. The brass hated Petraeus until he became a hero. So, yes, the CIA Director is a good candidate for going rogue because he already did it once.

Now consider the greatest example in American history of a general going rogue. This was when Air Force General Curtis LeMay started firing ICBM nuclear missiles over Russia at the height of the Cuban Missile Crisis. Months before the crisis erupted LeMay tricked President Kennedy into issuing a standing order stating LeMay could test fire Minutemen missiles at any time (LeMay foresaw the crisis, genius). On paper LeMay was not committing treason. But in reality he was telling the USSR that he would unleash America's nulcear arsenal against the communists whether Kennedy wanted him to or not. For a brief moment America became a dictatorship with an Air Force general in charge. This scared the holy crap out of Khrushchev. LeMay had 100% gone rogue. If he hadn't done this, then America would not have won the Cold War. Rogue is good.

By the way, the movie Dr. Strangelove was based on this incident. Rent it. Watch it.

Long War Gets Religion. Al-Qaeda Makes A Mistake

Long War: I was pretty shaken up at the realization that Israel is now openly fighting alongside America in the Long War. What a sea change. Since the early days after 9/11, the US has had a policy of keeping religion out of the global conflict. US Generals were fired for saying things like,"My God is bigger than Allah." Not only had Israel been kept out of the conflict but African Christian countries like Ethiopia have contributed less than they could have because a religious dimension, an Islam vs. Christianity/Judaism dimension, was thought to generate stronger recruitment for the bad guys.

But then a couple months ago we saw Christian Ethopia invade Somalia and bad guy recruitment is way down because the Ethopian Army (along with the Kenyan and African Union armies) are killing so many bad guys that working for an Al-Qaeda franchisee in Africa is no longer a nice job. Young men have been signing up to serve as fighters for Al-Shabab for the paycheck, not for religious reasons. So the CIA might as well use a powerful local army if it is available.

South Africa does not contribute soldiers to the AU Somali effort for the same reason, it is a militantly Christian nation and therefore underutilized. South African soldiers are the best of the best. Probably we will see them fighting in the LW in the years ahead, maybe sooner.

Do you remember my blog that stated America's approval rating in Muslim majority countries does not go up or down based on the superpower's military actions in the Mideast? Even invading a Muslim country doesn't change the approval rating. It stays at a negative 90% or in the high 80s no matter what.

And with all this in mind the recent dispatch directly by President Obama of a Special Forces unit into central Africa dedicated to wiping out the Lord's Resistance Army (LRA) makes sense. This must have been CIA Director Petraeus' idea. The LRA is the strongest and most evil radical Christian militia in Africa. Although not as big as Al-Shabab these Christian bad guys are even more terrifying. They will chop a little kid's head off for spitting on the sidewalk.

If all the bad Christian militias are eliminated in Africa, then good Christian militia can fight for the CIA. And it looks like we will need to ramp up this new crusade quickly. Boko Haram is another African Al-Qaeda franchisee (in Nigeria) and it is 100% devoted to killing Christians. The Nigerian Long War battlefield is a pure Christian vs Muslim environment. And Al-Qaeda opened this part of the war up only recently, wanting to go after African Christians for some reason (probably to disrupt Nigeran oil exports). Al-Qaeda then is at least partially responsible for the CIA's new policy of inserting religion into the war.

It may turn out to be a strategic mistake on Al-Qaeda's part to create new enemies like this.

Bad Analysis Becomes Good Analysis

Long War: I've given you all a raft of bad analysis concerning the brewing Iran crisis. Sorry. But now we have the good stuff on tap...

For the last two years there has been a two pronged covert campaign against Iran's nuclear weapons development program: 1) Assassination of top scientists. 2) Sabotage of Iranian centrifuges and other nuke devices by computer virus and perhaps other means.

We know that the CIA along with NSA and Britain's MI5 have been running the sabotage campaign because German industrial giant Siemens and other huge multi-national companies were involved in creating the Stuxnet virus. Siemens was essentially declaring war against Iran by joining this effort, putting its own employees at risk from Iranian retaliation, plus the Stuxnet virus infected Siemens industrial equipment outside of Iran. There is no way Siemens stuck its neck out like that at Israel's behest.

We also know that the two campaigns were coordinated very closely because one of the assassinations involved an Iranian scientist on the verge of putting a software patch over Stuxnet. He was killed right before the patch was complete.

So this makes you think the CIA was in charge of the whole enchilada. I thought this was also true because there were several obvious signs left behind by the early assassins that made you think Israel was running this part of the two-pronged campaign. It seemed too obvious, a red herring. But Israel is now saying openly (using the obscure language of diplomacy) that it has been behind these assassinations all along. The US, Britain, and Iran are essentially saying the same thing. Probably there is a hardened cadre of Iranian Jews inside the country working for Israel and the Iranian government does not know these people are Jewish.

Final nail in the coffin: Today Israeli and American intelligence officials gave a warning that Iran's puppet, Hezbollah, is sending bomb making expertise to bolster Thailand's Islamic insurgency. The fact that Iran is increasing its global terror footprint is interesting in and of itself but it also shows that the CIA and Mossad are now speaking with one voice. The charade that the CIA and Mossad are not joined at the hip has been shredded.

So the CIA has been authorizing all these assassinations by Mossad except for the most recent one, which is an example of Mossad going rogue against the Western alliance (that it is a part of) and not an example of the CIA going rogue as it did in the 50s and 80s. The American led alliance does not want war at this juncture, but Israel does. On a practical basis for you and me (retail investors), a rogue CIA is bullish. A rogue Mossad in unpredictable.

Meanwhile, on the Mideastern battlefield, America is funneling weapons and ordnance into the Gulf Arab militaries at a furious pace. America is loading the Gulf Arab allies for bear. On the water, Iranian speedboats are buzzing US warships, making practice runs at them. So I was probably wrong when I said Iran would sow the Strait of Hormuz with mines and not directly attack the 5th Fleet.

Saudi Arabia is saying it can put 2 million barrels a day of extra oil on the market when and if war explodes in the Gulf or if a total boycott of Iranian oil were to occur. This means OPEC no longer exists. So just the prelude to war has changed the economic structure of the world.

Worrisome: A while ago the US Navy ran an exercise designed to mimic a likely tactic of the Iranian Revolutionary Guard Navy. The bad guy tactic is to overwhelm big warships with hundreds of tiny speedboats loaded with proximity bombs as well as traditional weapons. True to form, this tactic would require the small speedboats to engage in suicide (how jihadist). Anyway, the exercise showed this tactic is pretty effective. Also, Iranian shore batteries are harder to hit than I previously thought and they occupy about one thousand miles of shoreline. When and if war erupts, it will be no walk in the park for the good guys.

Opinion polls within Iran show that support for Hezbollah is unpopular as is support for Syria. The Iranian public does not like Iranian force projection at the borders of Israel. However, the Iranian nuclear program is very popular with the Iranian public. They will fight to keep this program alive. And the now obvious involvement of Israel in an Islamic war is not good. After the war at sea and in the air is over there will be some sort of land war. President Obama has recently said America doesn't do conventional land wars any more. Yeah right.

America is tired of war. War is not tired of America.

CIA or Mossad?

Charts: The S&P 500 has been meeting fierce resistance at 1292, its October peak. Support is at 1285. At midday this Friday it has moved in and out of this support level about ten times. It needs to hold above support or we could see further technical damage.

Fundamentals: The S&P rating agency is set to announce downgrades on France, Austria, and maybe a few other EU countries after the bell today. Hopefully it does not also downgrade the European Financial Stability Fund (the bailout fund for Europe's weaklings). And there are rumors that Greece's second bail out package is falling apart. The big picture is that Europe needs to at least stabilize enough to have a lost decade like Japan, rather than a huge depression. A fledgling euro carry trade has emerged, just like the yen carry trade during the first two of Japan's lost decades. If the euro carry trade strengthens we will be okay. If not, we are screwed. Such a carry trade will weaken the euro. Up until recently a weak euro has been bad. It might now be good.

Long War: President Obama has a mechanism for communicating with Iranian dictator Ayatollah Khomeini. Obama is telling the Ayatollah that if the Strait of Hormuz is closed, then the US 5th Fleet will unleash everything it has on the Iranian regime. What does it have? Right now there are two aircraft carrier battle groups ready to go. Just one of these carrier air wings is much stronger than the entire Iranian Air Force. In the nearby Med there are USMC amphibious assault ships. The 5th Fleet also can take command and control of the substantial British naval assets in the region. All Gulf Arab navies and air forces will come under 5th Fleet control in the event of war. Gulf Arab military assets are designed to work with the American military like a hand and glove. The US Air Force has a huge land based presence in the Gulf, which will come under the flag of the 5th Fleet when and if hostilities begin.

What will happen if The 5th Fleet goes to war against Iran? Consider the Powell Doctrine, which was created to prevent another Vietnam War type outcome. The Powell Doctrine says America should never engage in a conventional war unless overwhelming forces are brought to bear and US public opinion firmly supports the use of this force in a decisive manner. The doctrine asserts that victory is assured if these criteria are met. American public opinion supports going to war against Iran in survey after survey. This is the only military action that the US public supports. And the force I just described is indeed overwhelming. So Iran would be annihilated.

Now think about the recent assassination of an Iranian nuclear scientist. This incident occurred at the most sensitive possible moment. The scientist killed, we now know, was in charge of procurement for the Iranian nuclear weapons program. This is the most important position in the program because Iran cannot acquire the materials and technologies for nuclear weapons from within its own borders. Coming when it did, the assassination seemed to be designed to enrage and goad Iran into taking action that would unleash the fury of the 5th Fleet against the jihadist regime. The bulk of the American military establishment and the Western alliance does not want to goad the bad guys into war. Yesterday the EU called off its sanctions on Iranian oil to cool the temperature and give Iran breathing space, working against whatever entity committed the assassination.

If Iran thought that entity was Israel's Mossad it wouldn't be super afraid, more pissed off. If it thought that entity was the CIA, then it would be terrified. Because the CIA has a long history in the 50s and 80s of going rogue and working against other parts of the US government to push the superpower into acting in a bellicose manner.

There has been a 100% correlation between an out-of-control, berserk, bellicose CIA and a bull market for US stocks. So it is important we answer the question in the title of this blog. Perhaps we should start with an easier question: Does Israel have the stones to push America toward a war?

I Am Sure It Is The CIA

Fundamentals: The European Central Bank says it is not using QE (printing money) to solve the Euro-crisis and it is only purchasing small amounts of Spanish and Italian debt. If it used QE to buy huge amounts of bad Euro debt, then the weak sisters in Europe would stop all free market restructuring and austerity programs and go back to sponging off Germany.

But the ECB is engaged in currency swaps with the central banks of America, Switzerland, Japan, and Canada. All these central banks are engaged in QE except Canada. They are printing their own currencies and buying Euros. So the ECB is effectively engaged in QE. And it using QE to flood European banks with super cheap loans. This creates the opportunity for the banks to open up a carry trade where they use low interest ECB loans to buy high yielding Italian and Spanish debt. Investors thought the European banks wouldn't have the nerve for such a risky carry trade. Today we learned they do have the nerve and this carry trade is in full swing. So the ECB is in a complicated Rube Goldberg sort of way using QE to buy Spanish and Italian debt. This is short term very good and long term very bad because reform efforts may now falter.

Meanwhile, in America, highly qualified unemployed workers have for quite some time had the ability to take unfilled low paying jobs. For the last four months they have been doing just that and we know this because low paying jobs are being filled but at the same time legions of unemployed workers are dropping out of the labor force. It is possible that once this low hanging fruit has been plucked the US labor market will falter again. Data that came out today indicate that this is indeed happening.

So the good news out of Europe and the bad news out of the US are warring with each other today for a wild ride.

Long War: The US 5th Fleet is moving one aircraft carrier battle group out of the Persian Gulf and moving two fresh battle groups in. This is an indication that it is preparing to deal with Iran's threat to close the Strait of Hormuz. As I've said before, Iran will lace the strait with mines, not attack the US Navy. I've researched the 5th Fleets operational doctrine for mine sweeping. It is more aggressive than I thought. Mine sweepers are very vulnerable to any sort of attack so the US Navy does not allow them to be attacked. Before the sweepers go into the strait, the 5th Fleet will take out all Iranian shore batteries and any Iranian surface ships or submarines that can possibly harm the mine sweepers.

The Navy will essentially go to war with Iran.

As the 5th Fleet prepares for war, the State Department is having a cow over the CIA's decision to assassinate an Iranian nuclear scientist at this delicate moment. It's almost as if the @#$% CIA wants America to go to war with Iran. Can you imagine an organization being so bellicose? Tsk. Tsk. Tsk. These assassinations have been going on for two years but for the first time ever America's diplomatic corp is saying (untruthfully) that the US has nothing to do with them.

How do we know it is the CIA, not Mossad? All the assassinations have been done in the same manner and are therefore done by the same organization. For various reason it can only be Mossad or the CIA. Two years ago one of the first assassin's body was recovered and a tattoo was found on his arm that had verses from an ancient Hebrew text that involved the ancient Persian Empire. So somebody then was trying to say the assassin was from Mossad. For this and other reasons I am sure it is the CIA.

All CIA Channel

All CIA Channel: CIA drones attacked and killed three low ranking militants in the Pak tribal region. With all the intel the CIA has gathered recently it could surely have attacked a higher ranking target. The drone moratorium has been getting a lot of press recently and this is the CIA's way of saying there is actually no moratorium. There is a moratorium but this little flea bite of a drone strike is taking Agency actions out of the glare of headlines. The press has been saying the moratorium is designed to increase America's approval ratings in the Muslim world. This is not true. Opinion polls conducted in Muslim majority countries show that drone strikes don't help or hurt America's image. Most Muslim countries have about a 90% disapproval rating of the USA and this number stays constant no matter what the superpower does. It doesn't even make any difference if a Muslim country is invaded with American troops, the approval rating will stay the same.

No, this is all about the coming peace talks. Step back in time and remember when the US was conducting peace talks with North Vietnam, the B52 bombing campaign was ratcheted up and down according to how well the talks were going. If the talks were going poorly, then the tempo of bombing increased. When the talks went well, fewer bombs were dropped. The drone strikes in Pakistan today are like the bombing campaign in Vietnam and Cambodia. Contrary to what you might think, Kissinger's peace treaty with North Vietnam was a good one, it would have held if the US had simply maintained its support of South Vietnam after 1972, just as the armistice with North Korea has held up over the decades because the US has kept supporting South Korea.

Finally, the CIA has killed another Iranian nuclear scientist. We can assume that he was a key member of the bad guys nuclear weapons development program. It must be demoralizing when a scientist makes a breakthrough and is then quickly killed. Imagine a classroom where the students who get good grades are killed. What an incentive to leave early and goof off.

Taliban Peace Talks

Long War: Everyone concerned is furiously preparing for the coming peace talks with the Taliban. The host country, Qatar, has made the sale of pork and alcohol illegal in much of the country. This is an important gesture to the bad guys, making them feel important and welcome. Qatar has also made office space and other accommodations available to the evil ones. Supposedly the Taliban is happy with their new offices.

For the past two months or so the CIA has halted all drone strikes in the Pak tribal lands. This is much more than a small gesture. Because of the cessation of drone strikes, NATO has seen a big uptick in good guy combat deaths and the bad guys have made huge inroads in other ways. The Pak government has been forced to forge mini-peace deals with several of the smaller Talibans to keep from being overrun in the tribal lands.

One is tempted to think the CIA has lost its mind with this grand gesture. How could the peace talks be that important to give away such an advantage to the enemy? It is a good question and I will try to come up with an answer but a few other things are occurring beneath the surface that makes the CIA look less than crazy. For one, CIA surveillance drone flights are way up. Under these watchful eyes the rats are all leaving their holes in the Pak tribal lands, scurrying about to perform their evil deeds. Taliban spokesmen have been quite chatty lately, talking about how wonderful it is to have the freedom of movement that comes from zero drone strikes. No doubt the CIA is recording all this activity, gathering intelligence for the day when drone strikes resume. For another, the ISI and the Pak Army are experiencing the horror of zero CIA drone strikes. My guess is that the big upsurge in goodwill they thought was coming from the Pak public is failing to materialize and their own existence is threatened much more than they anticipated.

And there are other preparations being made for the peace talks. Team Obama is releasing at least five of the most dangerous inmates at Gitmo. We have the name of only one of these bad guys and we know that he is a specialist in sectarian violence, Sunnis killing Shiites. Al Qaeda has recently stepped up its campaign of sectarian violence but the Afghan Taliban has not been happy with this move.

So the peace talks may be designed to split the Taliban away from Al-Qaeda. In fact this is openly stated by the good guys prior to the talks.

But I ask long term readers to recall my blogs from a couple years ago when I was talking about the CIA's campaign to kill participants in the first fumbling attempts at peace talks. It does seem a stretch that today the CIA would perform a 180 and abort its most important mission in the Af/Pak theater (drone strikes) just to facilitate these nebulous peace talks. Now I ask you to imagine what the Taliban will say to America's demands during these talks. American demands will include renouncing terrorism, supporting women's rights, etc... Of course the Taliban will say, "Pound sand." The talks will fail. And then a mighty swarm of drones will darken the sky over the tribal lands and a fusillade of Hellfire missiles will light up the evening sky.

Are We Winning The Long War?

Long War: Pres. Obama and Def. Sec. Panetta gave speeches yesterday explaining what they will do with the Pentagon's budget and overall LW strategy in the years ahead. Since Obama will almost certainly win the next election this is a pretty big deal and it begs the question: Are we winning the LW?

Obama says he will slash troop levels and expand the Reserve. The Navy and Air Force will be held steady but the Army and USMC will shrink drastically. Special Forces will be expanded. Weapons systems that can defeat China will be maintained but if there is a big war with China, the US will have to ramp up to win. Either that or resort to nuclear weapons right away. He can't talk about the CIA in public but just look what he's done... Panetta is a former CIA Director and the current director, Petraeus, is the greatest military mind in 70 years. As I've said so many times, the LW is being handed over to the CIA.

Let's take a detour and talk briefly about Tajikistan (trust me its relevant). To escape the Af/Pak war the bad guys there have to go through Tajikistan to hook up with the bad guys in the Caucus mountains of Russia. Tajikistan has the most savage anti-jihadist laws and policies of any country in the world. Radical Islam is brutally crushed there in a hundred different ways and in a manner that speaks of heavy CIA involvement. This bottles up the bad guys in Af/Pak. Changing the nature of the Tajik government from the inside out is something the US Army simply cannot do, no matter how much money we might throw into tanks, men, and guns. So Obama's strategy is correct, assuming there is no war with China.

Okay, here is how we know if we are winning the LW or not... Global reserve currencies held by the planet's central banks are currently 62% US dollars, slightly above historical average. For decades the dollar has gone up in value and increased its reserve currency status whenever the geopolitical temperature goes up. Except one time, when Obama said that America will "lead from behind" in the Libyan War. But shortly after he said that media accounts exploded of Special Forces soldiers with phony British accents leading the Libyan rebels and taking the wood to Gaddafi. The dollar returned to its former role as investors figured out what lead from behind actually meant.

The highest reserve currency percentage level ever attained by the dollar was 73% shortly after 9/11. It went down as the US faltered in Iraq and then back up as the US prevailed. The percentage has gone up every year of the Obama presidency. Look, we could try to add up the daily number of bad guys killed vs good guys killed in the LW, graph this info and scratch our heads at the trends to decide if we are winning or not. But a better report card is the role played by the US dollar. And the report card is saying America is getting a solid B- in the Long War. Now I know a lot of you got straight A's in school, but any normal person will tell you a B- is pretty good.