Good News From The Long War

Charts: The S&P 500 closed at 1061, down .2%. Last week saw leadership fall apart. Monday saw it come back together as the broad index popped. Today leadership was indifferent although we saw another fade at the end which was not good after all the recent volatility. The charts are so-so.

Fundamentals: On Monday the market recovered most of last week’s losses as a half-dozen M&A deals countered evidence that the tax credit boost to housing was wearing off, which spooked the markets. After the bad housing news, the administration said it wants to shove another $35 billion of Federal debt into subsidized low income housing. It’s a bad idea and probably can’t get past the Blue Dogs and Republicans. The government’s subprime mortgage machine, FHA, is now levered 55-1. Bear Sterns was levered 33-1 the day before it collapsed. So FHA will soon be bailed out with treasury debt. Not all is gloom and doom on the deficit; the most recent opinion polls on healthcare reform show voter support is sinking faster than the Titanic hitting an iceberg.

Geopolitics: There is good news from the Long War. In Afghanistan, the Marines led the Afghan Army in a very successful battle that resulted in about 40 dead bad guys including several Taliban commanders and zero dead good guys. We have two slightly conflicting body counts from NATO and the Afghan government. It is heartening that NATO is giving a body count, a sign that it won’t allow the bad guys to control public opinion in America. In Pakistan, two separate CIA drone flights killed 3 bad guys in North Waziristan and 5 bad guys in South Waziristan. The dead include high quality Taliban leaders and Al-Qaeda operatives. North Waziristan is where the top Al-Qaeda leaders are hiding and it has been off limits up till now. If the Paki Army is giving the green light to the CIA to rip into Al-Qaeda in N. Waziristan it means that the good guys are strong enough that they no longer need to pussyfoot around and make deals with the N. Waziristan Taliban, which has been the case up until now. Combine this with the fact that Paki civilian leaders hinted yesterday that the Paki Army is at long last getting ready to push into the Waziristan region and we have one of our best news days in while.