Geopolitics Dicey

Charts: The S&P 500 closed at 1029, down .2%. The broad index is in the center of a potential trading channel of 1018 and 1037. That looks like consolidation which is good but leadership is horrible. Close to half the trade volume lately has been centered on these iffy leaders: Fannie, Freddie, AIG, and Citigroup. Meanwhile Chinese stocks are tanking again.

Fundamentals: The consumer confidence survey and the consumer sentiment survey both try to measure the same thing and one of them is wrong because they are giving different results. Today the consumer confidence survey came in worse than expected while the other survey was better than expected. Surveys are essentially opinion polls and aren’t as reliable as hard data. Unfortunately, the hard data is mixed. Intel says that chip sales are improving, indicating that electronics are healthy but elsewhere there are no signs of a spending rebound other than heavily subsidized purchases like cash for clunkers. It’s going to take a drop in oil prices to turn the consumer around. So we should be worried that oil remains high and heed Professor Roubini’s warning that the cure is causing a new disease. The price of oil is up because of ultra-loose monetary policies.

Geopolitics: In Pakistan near the Afghan border, a Taliban suicide bomber killed 21 Paki policemen. The police checkpoint was along a NATO supply route and probably represents a probing attack as the bad guys mull the possibility of cutting good guy supply lines. In South Waziristan a CIA drone killed 10 bad guys reported to be Al Qaeda types that were gathering in a camp run by H. Mehsud’s Pakistani Taliban, a sign that the new super-chieftain is consolidating power but also that the CIA has his number. There are lots of reports of drone activity in South Waziristan lately. August is now the deadliest month so far in the 8-year old Afghan war, with 45 US troops killed. Defense Secretary Gates is saying that General McChrystal’s strategic assessment report will not include a request for more troops. McChrystal of course wants more troops but he is being told to make the request separately from his big report and wait until the 8000 surge troops that haven’t arrived yet are in country. McChrystal was given the job because he promised to get the job done with a small number of troops. I see a 50/50 chance that the administration will hold him to his promise. This is bad news. A new ABC poll says that 60% of Americans disapprove of Obama’s handling of the Afghan war. Opinion polls are trending the wrong way as far as Afghanistan is concerned. Stock buying is on hold for me until the geopolitical situation looks better. And I am still underweight stocks at about 20%.