CIA Mega Victory

Charts: The S&P 500 closed at 1010, up 1.3%. XLF (financial index) was up a whopping 2.7%. CAF (China) was down 1.8%. The broad index is exactly at the 1010 resistance level. This is okay because it should struggle with resistance. Chinese stocks are down but this may be a case of a switch in global leadership (see below). If this is the case, then it is very good.

Fundamentals: The Labor Department reported that payrolls fell by much less than expected. The unemployment rate dipped but only because discouraged workers quit looking for jobs. This report paints the same picture as yesterday’s jobless claim numbers, companies aren’t firing existing workers in a big way but the long term unemployed aren’t getting hired. On the bright side, the number of hours worked per employee went up for the first time in the recession. Employers will increase the work week for existing workers before they will hire new ones. So overall it was a good report.
There is more evidence that the Chinese government is slowing down the pace of lending to prevent bad loans from snowballing. About 20% of new lending in China is going into the stock market, so obviously the blistering pace of loan growth in China has become reckless and needs to be throttled back. The world is now in a position where America has to start leading the global recovery because China’s economy will probably soften from the unsustainably high 15% growth rate it experienced in the last quarter. Switching horses in mid-stream like this is gut-wrenching and unprecedented, but the dollar strengthened today on the good jobs news. For the past year the dollar would always weaken on similar good news since it had been acting as a safe haven; this in turn would cause oil to go up, limiting upside gains. One day doesn’t make a new trend, but oil dropped today on the strengthening dollar. Today the market is saying that America will retake its traditional role as the global engine of growth with China playing second fiddle.

Geopolitics: It was suspicious yesterday when the Taliban rushed to admit that super-chieftain Mehsud’s wife was killed by a CIA drone but miraculously the world’s number one bad guy got away, especially when we learned that the drone’s missile precisely targeted Mehsud’s personal bedroom. Now we learn that the CIA has pulled a body out of the wreckage that looks just like the super bad guy. What are the odds that another Taliban chief that looked like Mehsud was in bed with his wife? The CIA is running DNA tests on the body but it looks as though the good guys have indeed killed the most evil (and by that I mean most bearish) man on the planet. If the DNA test comes through it is impossible to overstate how big a victory this is for the forces of bullishness. The CIA has officially earned Dave’s Golden Bull award, the highest honor this newsletter can bestow on any organization.
The Pentagon has told Boeing to build the world’s most powerful conventional bombs; they will weigh 30,000 pounds apiece. These bombs will have only one function, to destroy Iran and/or North Korea’s nuclear weapon production facilities. As we’ve seen Obama has much bigger cojones in foreign affairs than anyone expected so it is likely that the Ayatollah has a new worry to fret over.