Charts: The S&P 500 closed at 1003, up 1.5%. The Nasdaq closed at 2009, up 1.5%. The S&P broke the key 1000 level and the Nasdaq broke the equally key 2000 level. All other indexes looked good. Technical strength is pronounced.
Fundamentals: Manufacturing reports from America and Europe came in better than expected. The US ISM survey jumped from 44.8 to 48.9 and new orders came in at a blistering 55.3 (over 50 is expansion). Construction spending in America unexpectedly improved. Retail sales in South Korea are strengthening sharply and this is the real story. The US and European consumers are weak but the Asian consumer is getting stronger as China’s boom spreads outward across the continent. The Chinese consumer can’t lift the world alone but the aggregate of all Asian consumers may be able to. Today’s good data from Western manufacturing is a reflection of Asian growth.
Cit Group made progress today in restructuring its debt, which takes a big threat off the table for now. Oil soared and the yield on government debt shot up (bearish) as we once again see that good news has a built-in negative effect that should limit any upside move.
Geopolitics: The Israeli Prime Minister is getting hit by hammer blows from a giant with a superpower’s strength. America is hammering on just one point: Israel must stop building in the West Bank and East Jerusalem. America makes no demands on the Palestinians and no other demands on Israel. America has never used this tactic before. In the past, grand schemes were cooked up that were good for winning Nobel Prizes but could never be implemented. If Israel keeps building settler housing on the West Bank there can never be a Palestinian state because that little sliver of land will eventually be filled with Israelis. But if building there is frozen, a Palestinian state is inevitable. Hard-line Israelis know this and will resist a settlement freeze with all they’ve got. Most Israelis are not hard-line and want a peaceful Palestinian state as a neighbor. If a freeze is implemented it is game over for the low level war between Israel and the Palestinians. Hamas will demilitarize as well Hezbollah and the entire Long War will cool off (super-bullish). Is this going to happen? Professional diplomats say no, team Obama is too unorthodox, too outside the box. But look at the price movement of ISL (Israel stock market). It has shot straight up since Obama started his settlement freeze demand. Who do you think is smarter: investors or foggy-bottom diplomats seeking Noble Prizes?
It sucks to be the Supreme Leader of Iran. The old guy ordered President Ahmadinejad to fire his moderate Vice-president. Ahmadinejad kept the moderate VP and only changed his job title to Chief-of-Staff, close to direct defiance of the old guy. The Supreme Leader is trying to transform his country into a 100% totalitarian dictatorship by staging Stalin-style show trials of dissidents with coerced confessions and other old school Soviet trappings. The show trials are off to a bad start, infuriating every moderate cleric in the country. The Ayatollah’s power is slipping. It seems odd to Westerners but one of his biggest problems is weak Islamic scholarship. He never did make the grade intellectually and this has always hurt him, now more than ever. It is as if the Chairman of America’s Federal Reserve did not hold a doctorate in economics and actually got bad grades in Econ. 101.
Specific Stocks: A.O. Smith (AOS) makes advanced water heaters in China and North America. The demand for water heaters in China is immense. Growth stocks like this should be bought after they break out of a basing pattern. Posco (PKX) will benefit from the new system for valuing iron ore prices that is slowly emerging. The new system favors low grade Australian ore. Posco technology works best with low grade ore.
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