Can Flying Robots Do The Job?

Charts: The S&P 500 closed at 1057, down .33%. American charts look bearish but emerging markets are looking much better. So the overall picture isn’t as bad as it seems chart-wise. 1050 offers psychological support and 1039 is the August intraday high, so that’s next support. After that 1033.

Fundamentals: The Chicago Purchasing Manager Index fell to 46 from 50. It was forecast to increase to 52. This index represents the manufacturing heartland and is the biggest of the regional surveys. It’s unexpected fall is one sign that the restocking theory is correct, which is to say that the big improvements we’ve seen in industrial activity has been due mostly to inventories being replenished, filling a void left behind after all economic activity came to a halt due to Lehman’s collapse, not genuine consumer demand. The bad Chicago numbers are just one sign and every other regional survey came in stronger than the Chicago PMI. The national PMI comes out Thursday and may tell a different story. The FDIC said that it will need to be bailed out by treasury debt to the tune of $100 billion. It actually said that it wants to soak the banks it protects by that amount, but since that is politically and economically impossible treasury debt is the only alternative. The fundies are bad today.

Geopolitics: Team Obama is beginning the review of McChrystal’s troop request today. We are supposed to have the President’s answer in weeks. The Team ordered two new Reaper drones into the CIA’s Pakistani fleet and hinted that the flying robots will soon be striking targets in Afghanistan. At the same time unexpectedly large troop withdrawals are announced for Iraq. Also, the Marines had shifted from offense to defense (protecting Afghan citizens verse attacking the Taliban) a little over a month ago when McChrystal first wrote his big policy review. Now the Army and Marines seem to be going back on offense and abandoning defense. This is my revised prediction: Troops will be drawn down aggressively in Iraq. Troop levels will stay the same in Afghanistan but drone power will be added as swiftly as possible. There will be spikes in Afghan civilian deaths from suicide bombers which will last until they raise neighborhood watch groups like in Iraq. Way more bad guys will die but good guy deaths won’t go up by very much. McChrystal’s plan would work better but not without more troops. If more troops are not forthcoming then the new plan (probably created by Petraeus) is a good idea. Here’s how we will know if the Petraeus Plan is working. Casualties spike in Iraq but then come way down, so US troops are indeed no longer needed there. If that happens plus the offensive makes headway in Afghanistan, then maybe it will work. Pakistan will have to step it up from the already terrific effort they’ve put in so far. The American public will have to hang in for three or four years without demanding troop withdrawals from Afghanistan. Troops come out of Iraq and that’s it.