Taliban Tries Tet

Charts: The S&P 500 closed at 1065, down .3%. The index had been finishing in the high range of trading at day’s end throughout most of this rally leg. Today it weakened into the finish, which is bearish, but the decline was so small that the technical damage was insignificant.

Fundamentals: First time jobless claims came in better than expected and continuing claims were quite a bit worse. Revisions to old data came in worse, which has been a trend lately. The market usually ignores revisions but it might be paying more attention now. The Philly Manufacturing Index came in strong. Housing starts were strong but the more forward looking building permits number disappointed, maybe a sign of what will happen if the first time home buyer tax credit is allowed to expire in late November. Overall the fundies were weak today.

Geopolitics: In Afghanistan, the Taliban killed 6 Italian soldiers in the supposedly safe capital city Kabul. The Taliban is probably trying a Tet Offensive-type strategy, taking a page from the Vietnam War. In 1968 North Vietnam knew there was a lot of liberal American media in South Vietnam. With an eye to that media presence, the North committed its entire conventional army and guerilla army (the Viet Cong) in what amounted to a suicidal offensive that lasted about two months. Images of the fighting were broadcast into homes of American TV viewers along with liberal defeatist commentary. At the end of the offensive the Viet Cong were utterly destroyed and the North’s conventional army was in tatters. A massive defeat for the bad guys in one sense. The rest of the war should have been a cakewalk. But the offensive turned the tide of public opinion in America and proved to be a brilliant move. Ever since, this strategy has been a blueprint for defeating the US. Warlords in Somalia used the strategy successfully during the Clinton administration in the Blackhawk Down incident, where a tiny ragtag group of bad guys were able to project images of dead US soldiers being dragged around the streets of Mogadishu into American households. In a blind panic, Clinton pulled US troops out of Somalia, a flea biting an elephant and the elephant actually runs away. Osama bin Laden said that the Blackhawk Down incident had a profound effect on him. However, Obama has more backbone than Bill Clinton.
The war in Pakistan is going well. It turns out that the Al-Qaeda officers that CIA drones have been killing lately are higher quality targets than initially supposed, top aides to Osama bin Laden. The Paki Taliban has taken to robbing banks to get funding. This means that the drones are cutting off their money supply by killing Al-Qaeda fund raisers.