Obama Kicks It Old School

Charts: The S&P 500 closed at 1069, up 1.5%. The only way to be technically bullish about this mad upward tear is to buy into the theory I put forth yesterday, the chart action from January to May doesn’t count and only the year to date gains are important, which aren’t that big for the first year in a new bull market. The fundamental basis for this technical view is that credit swap markets are now much better (true) and that housing has recovered (maybe). Resistance is at 1100.

Fundamentals: Industrial production came in much better than expected today. Throughout the bull market and the nascent recovery industrial data has been better than service sector data. This trend is so pervasive it is probably indicating a structural shift and speaks to being overweight industrials. There was more M&A activity today, which tends to turbo-charge stocks. The dollar is replacing the yen as the main funding currency for the carry trade. This will weaken the dollar even more, boost investment in countries with higher yielding currencies (like Brazil), help American companies with big overseas sales, and bolster gold mining stocks.

Geopolitics: Obama has the power to simply order more troops into Afghanistan. The only way Congress could do anything about it would be to cut off funding for the troops while they are in the middle of a war. This is a virtual impossibility because the Blue Dog Democrats and the Republicans are strongly in support of the troop increase. Also, the public would go insane if a bunch of combat deaths resulted from good guys running out of ammunition. This is what liberal legislators don’t understand, before Jimmy Carter there has never been an economically left-wing President who was also a dove. FDR, Truman, JFK, and LBJ were extreme hawks. They represent the foreign policy old school of the Democrats. The old school is back, at least in the White House. Chairman of the Joint Chiefs, Admiral Mike Mullen, told off the liberals in the Senate Armed Service Committee yesterday while he was suppose to be bowing, scrapping, and begging to be renominated for his Chairmanship. The liberals on the committee were slack-jawed with amazement when the Admiral started slapping them around. Where did he get the balls to do that? This is what the President said after Mullen’s testimony, “There is no immediate decision pending on resources [for Afghanistan]” and “Afghanistan is not Vietnam.” So Obama is calling the request for more troops a request for “resources,” the Pentagon and hawkish think tanks have been using the term “resources” also. And the comment about Vietnam is pretty obvious.

Specific Stocks: Better than being best in breed is going from second best to number one. DuPont (DD) for years got clobbered by Monsanto in genetically modified seeds. But now DuPont seeds are better. Nokia (NOK) has been weak for a long time but now it is getting its mojo back and going after RIMM, creating new net-book products, and partnering with Intel and Microsoft for other exciting new gizmos. Barrick Gold (ABX) is the biggest gold miner. Goldcorp (GG) is the lowest cost producer, aggressively opening new mines, and does not hedge against price changes in the yellow metal. Miners almost always screw up when they hedge, losing money on the majority of their hedges.