Liberals Fly White Flag

Charts: The S&P 500 closed at 1044, down .61%. We aren’t seeing institutional investors buying on dips this week (bearish). The market’s recent gains have been so fast and furious and the year ago period that we have to look back at for meaningful support and resistance saw losses so equally fast and furious that there is no clear technical picture. The August upper range of 1033, therefore, offers support and 1100 is resistance.

Fundamentals: New home sales were flat in August, defying expectations for a big increase, further proof that the tax credit boost is waning. Durable goods orders also disappointed. The Consumer Sentiment Index came in much better than expected because it is now following stock prices. In other words, Wall Street is leading Main Street in a positive feedback loop that should keep working as long as the stock market only goes up. Obviously if stocks tank the feedback loop is reversed (scary).
Housing experts are now saying that the shadow supply is close to 7 million homes (staggeringly huge). The market is ignoring this looming hazard to large cap financials. Another looming hazard is the $300 billion loss that small cap regional banks face on souring commercial real estate loans. The market is not completely irrational by ignoring these big icebergs that the economy is sailing straight into. The Fed knows that banks have big losses on the horizon and will therefore keep interest rates at zero for a long time to artificially boost financial sector profits and (hopefully) allow this sector to amass enough capital to withstand the coming disasters. The market thinks that permanently low interest rates will keep inflating the stock bubble and fundamentals can safely be ignored.
If fundies don’t pop the stock bubble first it will get popped by the coming healthcare package. Obama-Care will resemble the Massachusetts State Healthcare System (Mass-Care). The original cost projections for Mass-Care were 60% too low. In the 1960s the Federal government underestimated the future costs of Medicare by 90%. So instead of costing $1 trillion over ten years, Obama-Care will cost several trillion dollars. Higher than expected government debt will make it impossible to keep interest rates low enough to bailout banks indirectly. All this gloom and doom could be mitigated by a turnaround in the currently dicey geopolitical situation.

Geopolitics: In Pakistan, CIA drones have killed about a dozen bad guys in recent strikes. The Paki Army is killing on average 15 bad guys a day in the Swat Valley. That’s good news on the surface but the Paki Army is supposed to have been pushing into South Waziristan by now and instead it is still bogged down in Swat. In America, liberals have honed their argument for taking troops out of Afghanistan by saying that the real bad guys are Al-Qaeda, not the Taliban, and Al-Qaeda is in Pakistan only, therefore simply flying drones and stepping up foreign aid to Pakistan is plenty good enough and we can stop fighting and spending money in Afghanistan (moronic). Over the summer the FBI has foiled 4 Islamic terror plots in the US. One was directly linked to Al-Qaeda. One was purely homegrown. Two had some Mid-East linkage. What will happen in the US if America flies a white flag in Afghanistan?