Moving Parts Come Together

Charts: The S&P 500 closed at 1007, up 1%. Yesterday I said a lot of technical moving parts had to work just right for the rally to stay intact. So far so good. Over the past couple weeks the Shanghai index had experienced a harsh correction, verging on bear market territory. In Chinese trading last night it responded to the gain in the S&P 500/Nasdaq and jumped up out of bear market territory, reconfirming the global leadership change from China to America and bolstering global markets. Today’s gains in US trading were a bit much for consolidation, erasing all of the big loss Monday and then some. The broad index hasn’t broken through resistance at 1010, so range bound consolidation is still possible.

Fundamentals: First time and continuing jobless claims both came in worse than expected. Indicating there is no real turnaround in US employment yet (bearish). The Philly Fed manufacturing index for the Mid-Atlantic region came in strong, as have other regional manufacturing indexes and in fact global manufacturing. Most of these jumps are based on restocking and strength in emerging Asia. In Q2 emerging Asian economies as a whole grew by 10% (annualized), which is scorching growth, but we don’t know what will happen when Asian stimulus spending stops. The good news is that China’s stimulus spending will be tapering off in the next few months and the global economy will be like a child riding a bike without training wheels for the first time. We’ll see if the global economy only wobbles or falls down hard. Asian consumers and to a lesser degree OECD consumers will have to pick up the slack left by the cessation of stimulus spending. Consumer psychology will be affected by the geopolitical picture; so, as always, it is paramount

Geopolitics: During today’s election in Afghanistan the Taliban needed to deliver something like what the Viet Cong delivered in the Tet Offensive in Vietnam, a massive hammer blow that killed hundreds of voters. The bad guys didn’t get the job done (bullish). There was slightly less violence today than there has been over the past few days. Through rocket attacks and shoot-outs, the bad guys managed to shut down 11% of the polling stations and turn-out was a smidge lower than the last election in ‘04. Afghani voters are seemingly apathetic and exhausted after the election, but alive. Western media is reporting the election as a failure because all hope for democracy magically ending the war is now gone. For investors the real news is that Bush’s boneheaded mistake of promoting democracy in Afghanistan isn’t hurting the war effort nearly as much as we feared. The Taliban has promised to cut off the ink stained fingers of voters over the next few days in big numbers, so this is the bad guy’s next test and conversely NATO’s next test.
In response to Israel freezing building permits in the West Bank, Russia has agreed not to sell Iran advanced air defense systems. This means that Israel can bomb Iranian nuclear production facilities if it needs to. It is amazing how rapid the domino effect has been from the settlement freezing. Team Obama has really hit a home run with this one.
The Yemeni Army is organizing northern tribes to fight the Zaydi rebels in the Saudi/Yemen border area, a more sustainable solution to having the Army carry most of the burden as the fighting there will probably last a long time. Yeah tribalism. Boo democracy.

Specific Stocks: QQQQ is the index for the Nasdaq 100. The Nasdaq is the global leader so it is a simple bet on whether we are in a bull market or not. ISL is the index for Israel. More risky, it is a bet that Team Obama’s diplomacy is working in the region. Google (GOOG) is bringing out its Android smart phone operating system and handset makers around the world are embracing it. Microsoft’s Bing search engine is doing okay, but its gains are slowing even though Microsoft is spending $100 million advertising it. Most of Bing’s gains have come at the expense of Yahoo.