Charts: The S&P 500 closed at 1038, down a painful 2.8%. The market is in a correction. Based on long term cyclically adjusted PE ratios the market is 40% over valued at current prices.
Fundamentals: Today professional economists did the calculations that I roughed out yesterday, stripping out the government’s Home Buyer Tax Credit and Clunker boost from the GDP numbers. They said the 3.5% increase would have been 2% without the government programs. If we also strip out the inventory distortion, then the Q3 GDP increase was 1%, which is about 1/3 of average for this stage in a recovery. Investors are beginning to ask themselves if 1% growth is worth permanently tripling the annual federal deficit as a percent of GDP.
Geopolitics: The Pak media was allowed into S. Waziristan today. The media received the impression that the war is much larger than the Army has been saying, with 80 bad guys getting killed every day rather than 30 or so, which dovetails with what refugees streaming out of S. Waziristan have been saying. This means that the Taliban in Afghanistan are probably much stronger than is generally supposed and it is more important than ever for President Obama to listen to his generals and grant McChrystal’s troop request and policy changes. Obama is meeting with his top generals today, by tomorrow there will be leaks concerning this meeting and we can analyze these leaks.
India says that it is going to remove 15,000 soldiers off the Pak/India frontier and engage in peace talks with various separatist factions within Pakistan over the Kashmir conflict. This will allow the Pak Army to move one more division off the militarized frontier and into the fight against bad guys.
Friday, October 30, 2009
Thursday, October 29, 2009
Market Snaps Back
Charts: The S&P 500 closed at 1066, up 2.3%. The asset-bubble re-inflated violently today. The dollar dropped while oil, gold, and stocks jumped with emerging market stocks outperforming massively. During the recent downturn the dollar strengthened and assets plunged. The stock market is still technically in a correction and today’s action was a rally attempt.
Fundamentals: America’s Q3 GDP grew at 3.5%, proof that the recession has ended and higher than the 3% forecast. The government is quirky and wrongheaded in the way it uses inventory changes to calculate GDP. Strip out inventory distortions and GDP grew by only 2.5%. Investors are trained to only look at headline GDP. America’s so-so Q3 GDP was boosted by Cash for Clunkers and the expired Home Buyer Tax Credit; if we strip these two government programs out and the inventory distortion, then there would still have been growth, maybe 1-2%. The Home Buyer subsidy is probably going to be re-instated and expanded so let’s factor it back in and we get American GDP growth of 2%. So the US economy is expanding weakly out of the Great Recession. The world economy looks better. Germany today said that its unemployment rate dropped, which means that it is further into the recovery cycle than America. And since Germany didn’t enact huge deficit fueled stimulus programs its recovery is more sustainable. Norway raised central bank interest rates, following Australia and Israel. The global economy is tip-toeing into a fiscal and monetary tightening cycle.
Geopolitics: In S. Waziristan, the Pak Army is grinding forward on its 3-pronged offensive, killing 1.5 bad guys every hour around the clock. The Taliban is killing Pak civilians at about the same pace in the non-tribal regions, although civilian terror deaths come in bursts, not a steady drumbeat as is the case with bad guy combat deaths. About 300 bad guys and 300 civilians have been killed so far. Good guy combat deaths number somewhere around 30 or more. The Army does not have troop lifting helicopters so it slogs up mountains on foot under fire from the bad guys. The Army made its first attempt to raise a good guy tribal militia in S. Waziristan this week and failed. The tribes won’t play ball until they know the Army is winning for sure. Once the tribes come to this realization, a militia can be formed, trained, equipped and turned loose. Then the bulk of the Pak Army can withdraw and low level fighting between the good guy militia and what’s left of the bad guys will continue forever. At that point economic growth will be the Pak government’s most potent weapon against the bad guys in the tribal regions, peeling young men away from the Taliban with jobs.All Islamic counterinsurgency campaigns must go through this process to be successful. Advanced armies must bear the brunt of the fighting until a tipping point is reached. Local militias then carry on the fight. The advanced army draws down troops but it must always maintain some presence in the combat zone to oversee the low level war forever. This must happen in Afghanistan. After that America must begin the process in Somalia/Yemen. Does Obama know all this? Probably. Will he abandon healthcare reform in favor of the war? While mulling the troop request he has met with every half-backed peacenik in the country. Friday he meets with the Pentagon leaders. They will hammer him mercilessly to do the right thing.
Fundamentals: America’s Q3 GDP grew at 3.5%, proof that the recession has ended and higher than the 3% forecast. The government is quirky and wrongheaded in the way it uses inventory changes to calculate GDP. Strip out inventory distortions and GDP grew by only 2.5%. Investors are trained to only look at headline GDP. America’s so-so Q3 GDP was boosted by Cash for Clunkers and the expired Home Buyer Tax Credit; if we strip these two government programs out and the inventory distortion, then there would still have been growth, maybe 1-2%. The Home Buyer subsidy is probably going to be re-instated and expanded so let’s factor it back in and we get American GDP growth of 2%. So the US economy is expanding weakly out of the Great Recession. The world economy looks better. Germany today said that its unemployment rate dropped, which means that it is further into the recovery cycle than America. And since Germany didn’t enact huge deficit fueled stimulus programs its recovery is more sustainable. Norway raised central bank interest rates, following Australia and Israel. The global economy is tip-toeing into a fiscal and monetary tightening cycle.
Geopolitics: In S. Waziristan, the Pak Army is grinding forward on its 3-pronged offensive, killing 1.5 bad guys every hour around the clock. The Taliban is killing Pak civilians at about the same pace in the non-tribal regions, although civilian terror deaths come in bursts, not a steady drumbeat as is the case with bad guy combat deaths. About 300 bad guys and 300 civilians have been killed so far. Good guy combat deaths number somewhere around 30 or more. The Army does not have troop lifting helicopters so it slogs up mountains on foot under fire from the bad guys. The Army made its first attempt to raise a good guy tribal militia in S. Waziristan this week and failed. The tribes won’t play ball until they know the Army is winning for sure. Once the tribes come to this realization, a militia can be formed, trained, equipped and turned loose. Then the bulk of the Pak Army can withdraw and low level fighting between the good guy militia and what’s left of the bad guys will continue forever. At that point economic growth will be the Pak government’s most potent weapon against the bad guys in the tribal regions, peeling young men away from the Taliban with jobs.All Islamic counterinsurgency campaigns must go through this process to be successful. Advanced armies must bear the brunt of the fighting until a tipping point is reached. Local militias then carry on the fight. The advanced army draws down troops but it must always maintain some presence in the combat zone to oversee the low level war forever. This must happen in Afghanistan. After that America must begin the process in Somalia/Yemen. Does Obama know all this? Probably. Will he abandon healthcare reform in favor of the war? While mulling the troop request he has met with every half-backed peacenik in the country. Friday he meets with the Pentagon leaders. They will hammer him mercilessly to do the right thing.
Wednesday, October 28, 2009
Market In Correction
Charts: The S&P 500 closed at 1043, down 2%. The market is in a correction.
Fundamentals: The Commerce Dept. reported that new home sales experienced the first decline since the rally started in March. The Home Buyers Tax Credit is effectively expired, the reason for the decline. Congress will probably extend the program. The new program will have less impact than the original but it will bolster housing for a few months and when it expires housing will take another dive and the debate will begin for a third extension. GMAC just got its 3rd bailout today. Failed stimulus and failed bailouts is the pattern of Japan in the 90s (not good).
Geopolitics: The Pak Army 3-pronged attack in S. Waziristan advanced on 2 prongs and stalled on 1 prong, killing 42 bad guys Tuesday with one good guy killed. It is possible that the bad guy body count is accurate but more good guys were killed than the Army is admitting. The Pak Army says that overall Taliban resistance is stiff. In the non-tribal areas of Pakistan the Taliban continues to inflict big damage through terror attacks.
In Somalia, Al-Shabab says that it is ready to attack Uganda. The Ugandan Army supplies most of the troops to the AU force fighting the bad guys in Mogadishu. The Ugandan government takes the threat seriously enough to start rounding up Somali nationals and refugees inside its borders. The war rages on in Mogadishu in a bloody stalemate.
Yemen and Somalia are only separated by a small body of water. If we look at a map and draw red circles around Afghanistan/Pakistan and Yemen/Somalia it appears that there are two combat zones in the Long War. The President of Yemen said as much today by calling on the Arab world to help the good guys in Somalia; he knows that his government is in grave danger if Al-Shabab takes complete control of Somalia. Now look at a map of the Mid-East’s proven oil reserves in relation to Yemen and Afghanistan and you will see why the long term danger is so great from these conflicts.
The big picture for the Long War revolves around Obama giving McChrystal the green-light on troops and strategy. This hinges on Healthcare reform passing. Healthcare is floundering as Senate Majority Leader Reid reintroduced the public option to his version of the package to bolster liberal support. This stripped support from Blue Dogs and Republicans.
Fundamentals: The Commerce Dept. reported that new home sales experienced the first decline since the rally started in March. The Home Buyers Tax Credit is effectively expired, the reason for the decline. Congress will probably extend the program. The new program will have less impact than the original but it will bolster housing for a few months and when it expires housing will take another dive and the debate will begin for a third extension. GMAC just got its 3rd bailout today. Failed stimulus and failed bailouts is the pattern of Japan in the 90s (not good).
Geopolitics: The Pak Army 3-pronged attack in S. Waziristan advanced on 2 prongs and stalled on 1 prong, killing 42 bad guys Tuesday with one good guy killed. It is possible that the bad guy body count is accurate but more good guys were killed than the Army is admitting. The Pak Army says that overall Taliban resistance is stiff. In the non-tribal areas of Pakistan the Taliban continues to inflict big damage through terror attacks.
In Somalia, Al-Shabab says that it is ready to attack Uganda. The Ugandan Army supplies most of the troops to the AU force fighting the bad guys in Mogadishu. The Ugandan government takes the threat seriously enough to start rounding up Somali nationals and refugees inside its borders. The war rages on in Mogadishu in a bloody stalemate.
Yemen and Somalia are only separated by a small body of water. If we look at a map and draw red circles around Afghanistan/Pakistan and Yemen/Somalia it appears that there are two combat zones in the Long War. The President of Yemen said as much today by calling on the Arab world to help the good guys in Somalia; he knows that his government is in grave danger if Al-Shabab takes complete control of Somalia. Now look at a map of the Mid-East’s proven oil reserves in relation to Yemen and Afghanistan and you will see why the long term danger is so great from these conflicts.
The big picture for the Long War revolves around Obama giving McChrystal the green-light on troops and strategy. This hinges on Healthcare reform passing. Healthcare is floundering as Senate Majority Leader Reid reintroduced the public option to his version of the package to bolster liberal support. This stripped support from Blue Dogs and Republicans.
Tuesday, October 27, 2009
Obama Delay Hurts War Effort
Charts: The S&P 500 closed at 1063, down .3% on the day and 1.5% since Monday. Leadership is weak. Volume patterns are bearish.
Fundamentals: South Korea reported Q3 GDP and surprised to the upside, a pocket of strength to otherwise downbeat global data. American consumer confidence numbers today and over the past couple weeks have been coming in very weak, due to fears over rising unemployment. In China, internet advertising revenue is weakening. Weak data out of the US and China could be attributed to the so-called “air pocket” that the Economist talked about.
Geopolitics: The Pak Army body count is more reasonable this week and therefore probably accurate with 29 bad guys killed and 6 good guys killed on Monday. The fighting is of course mostly in S. Waziristan but other tribal regions continue to see clashes. In S. Waziristan, the Army is slowly grinding forward on all three of its prongs, methodically clearing forests and mountaintops around small Taliban towns that it needs to conquer and hold before it can advance on key cities like Makeen (capital city for the Pakistani Taliban). The Army says that it captured two more small towns on Monday.
In Afghanistan, 8 US troops were killed in a coordinated Taliban multiple bombing attack. 14 troops were killed earlier in the week in non-combat helicopter accidents. US combat and non-combat deaths in Afghanistan are more damaging to American public opinion now then under normal circumstances because the President is locked into his delaying tactic over McChrystal’s policy review.
Fundamentals: South Korea reported Q3 GDP and surprised to the upside, a pocket of strength to otherwise downbeat global data. American consumer confidence numbers today and over the past couple weeks have been coming in very weak, due to fears over rising unemployment. In China, internet advertising revenue is weakening. Weak data out of the US and China could be attributed to the so-called “air pocket” that the Economist talked about.
Geopolitics: The Pak Army body count is more reasonable this week and therefore probably accurate with 29 bad guys killed and 6 good guys killed on Monday. The fighting is of course mostly in S. Waziristan but other tribal regions continue to see clashes. In S. Waziristan, the Army is slowly grinding forward on all three of its prongs, methodically clearing forests and mountaintops around small Taliban towns that it needs to conquer and hold before it can advance on key cities like Makeen (capital city for the Pakistani Taliban). The Army says that it captured two more small towns on Monday.
In Afghanistan, 8 US troops were killed in a coordinated Taliban multiple bombing attack. 14 troops were killed earlier in the week in non-combat helicopter accidents. US combat and non-combat deaths in Afghanistan are more damaging to American public opinion now then under normal circumstances because the President is locked into his delaying tactic over McChrystal’s policy review.
Sunday, October 25, 2009
Heart Of Darkness Pierced
Charts: We have had 11 days of consolidation with the broad index bouncing between 1080 and 1100. With the market about 40% overvalued from the 100 year average and pricey even for the Great Moderation era, consolidation is healthy and needed for the bull market to have legs.
Fundamentals: 78% of S&P 500 earnings reports so far have beaten expectations. The historical average is 60%. The beats have been meaty, some (like Apple and Amazon) spectacular. And we are finally getting revenue beats, not just cost-cutting surprises. The average company is still showing a profit decline, but somewhere around 18% instead of the expected 25%. So this earnings season is coming in fairly strong, good but not great. Things are getting less bad, not way better. Does this improvement justify the strongest rally in stock market history? Part of market gains is due to asset inflation (bubble-mentality) and part is due to improving fundamentals. Even though the bubble has sprung a few leaks it is still there. Britain unexpectedly reported a negative Q3 GDP number Friday. It is still mired in the Great Recession when it was expected to have shown some growth like Germany and France. The country’s stock market should have tanked. Instead, it rallied, blowing away Germany and France. British investors rejoiced because supposedly the Bank of England will have to step up Quantitative Easing to fight the ongoing recession, which will cause liquidity driven asset inflation. This incident is one sign that bubble mentality is still in place.
Geopolitics: The Pak Army has recaptured Kotkai. After a bloody seven day siege, the birthplace of H. Mehsud is under Army control. The heart of darkness has been pierced, a big psychological blow to the Taliban. But the war rages on. The beast is still alive and fighting fiercely. Pak Army body counts have become unreliable which means that both sides are experiencing very high casualties. A better idea of the size of the conflict can be gleaned from media interviews of civilians streaming out of the combat zone. These refugees say that Taliban reinforcements are flowing in from Afghanistan in a big way. At the beginning of the campaign, the Pak Army gave some pretty low numbers for the size of the bad guy army, a few thousand fighters. A good guess now is that there are 15,000 Taliban fighters in S. Waziristan, the greatest concentration of bad guys on Earth.
A series of key towns have to be captured and held before the Taliban capital city of Makeen can be effectively seized and controlled. These towns are empty of civilians and are protected by heavily fortified bad guy positions in the surrounding mountains. The bad guys move from mountaintop to mountaintop via a complex network of mountainous trails and have the ability to rearm and re-provision themselves now and in the winter. S. Waziristan strategic towns and adjacent roads are riddled with booby-traps and bombs. The combat is the most hazardous that the Army has seen so far, much tougher than the Swat Valley. There is a long-standing tradition throughout the region to not fight in winter. There are reports that Pak soldiers are being issued winter gear so the campaign is probably designed to run through winter, despite the local belief that winter warfare is impossible. Probably the same is true of the fighting in Afghanistan.
The Saturday Wall Street Journal ran an article saying that President Obama has made up his mind and now favors the McChrystal Plan. According to the Journal this will be made public in a couple weeks. Secretary Gates says that he has troop commitments from most NATO countries. The commitments are said to be small but it might signify an eventual willingness to allow existing continental European troops to actually fight rather than just hand out food packets and hide if any bad guys show up. Allowing these troops to fight would be like adding 20,000 American soldiers
Fundamentals: 78% of S&P 500 earnings reports so far have beaten expectations. The historical average is 60%. The beats have been meaty, some (like Apple and Amazon) spectacular. And we are finally getting revenue beats, not just cost-cutting surprises. The average company is still showing a profit decline, but somewhere around 18% instead of the expected 25%. So this earnings season is coming in fairly strong, good but not great. Things are getting less bad, not way better. Does this improvement justify the strongest rally in stock market history? Part of market gains is due to asset inflation (bubble-mentality) and part is due to improving fundamentals. Even though the bubble has sprung a few leaks it is still there. Britain unexpectedly reported a negative Q3 GDP number Friday. It is still mired in the Great Recession when it was expected to have shown some growth like Germany and France. The country’s stock market should have tanked. Instead, it rallied, blowing away Germany and France. British investors rejoiced because supposedly the Bank of England will have to step up Quantitative Easing to fight the ongoing recession, which will cause liquidity driven asset inflation. This incident is one sign that bubble mentality is still in place.
Geopolitics: The Pak Army has recaptured Kotkai. After a bloody seven day siege, the birthplace of H. Mehsud is under Army control. The heart of darkness has been pierced, a big psychological blow to the Taliban. But the war rages on. The beast is still alive and fighting fiercely. Pak Army body counts have become unreliable which means that both sides are experiencing very high casualties. A better idea of the size of the conflict can be gleaned from media interviews of civilians streaming out of the combat zone. These refugees say that Taliban reinforcements are flowing in from Afghanistan in a big way. At the beginning of the campaign, the Pak Army gave some pretty low numbers for the size of the bad guy army, a few thousand fighters. A good guess now is that there are 15,000 Taliban fighters in S. Waziristan, the greatest concentration of bad guys on Earth.
A series of key towns have to be captured and held before the Taliban capital city of Makeen can be effectively seized and controlled. These towns are empty of civilians and are protected by heavily fortified bad guy positions in the surrounding mountains. The bad guys move from mountaintop to mountaintop via a complex network of mountainous trails and have the ability to rearm and re-provision themselves now and in the winter. S. Waziristan strategic towns and adjacent roads are riddled with booby-traps and bombs. The combat is the most hazardous that the Army has seen so far, much tougher than the Swat Valley. There is a long-standing tradition throughout the region to not fight in winter. There are reports that Pak soldiers are being issued winter gear so the campaign is probably designed to run through winter, despite the local belief that winter warfare is impossible. Probably the same is true of the fighting in Afghanistan.
The Saturday Wall Street Journal ran an article saying that President Obama has made up his mind and now favors the McChrystal Plan. According to the Journal this will be made public in a couple weeks. Secretary Gates says that he has troop commitments from most NATO countries. The commitments are said to be small but it might signify an eventual willingness to allow existing continental European troops to actually fight rather than just hand out food packets and hide if any bad guys show up. Allowing these troops to fight would be like adding 20,000 American soldiers
Friday, October 23, 2009
Pak Army In Siege Mode
Charts: The S&P 500 closed at 1080, down 1.2%. The Dow is under 10,000. The broad index is hanging onto the key support level of 1080 by the skin of its teeth. Volume patterns have been bearish for two weeks. The uptrend is in trouble.
Fundamentals: September existing home sales came in very strong but analysts attributed this to a final surge in 1st time home buyer tax credit buyers, this program is effectively expired now. Congress would like to extend the home buyer giveaway but credit markets are beginning to exert discipline on US deficit spending, plus the program was riddled with fraud, so it might not get extended. The dollar has popped up this week on safe haven buying which is hurting commodities and stocks. The dollar stabilizing, oil going down, and credit markets disciplining Congress are all fundamentally good news but bad news for the asset bubble. As I’ve been saying, much of the market’s gains have been based on bubble-type asset inflation. Consider: consumer stocks have risen in exact tandem with the price of oil. But oil and consumer stocks should be natural enemies like cats and dogs, moving in opposite directions.
Geopolitics: In Pakistan, in S. Waziristan, the Army’s multi-pronged advance is stalled on all points of attack and the Pak Air Force is ramping up helicopter gunship and F-16 sorties while the Army’s artillery pounds away. The Army says that all civilians are out of harm’s way. Whether this is true or not doesn’t matter in a military sense. If the Army and Air Force are willing to carpet every square inch of enemy territory with artillery shells and bombs, then they can kill all the bad guys given time, and it is irrelevant how many civilians are eventually pulled out of the rubble.
The strategic village of Kotkai is still under Taliban control and the Army is settling into a siege there and around other key Taliban towns. Fighting is occurring in wooded terrain, underground, and in mountains. 24 bad guys were killed and 4 good guys today in S. Waziristan. In other tribal regions, 34 bad guys were killed, and an unknown number of good guys. Fighting is unexpectedly heavy throughout bad guy territory, not just in S. Waziristan.
The Taliban assassinated a Pak Army general in Islamabad. This incident grabbed the biggest headlines in global financial journals. The war in Pakistan isn’t going as well as investors expected as indicated by a big drop in the Karachi Exchange and some of the recent overall global market weakness, but the good guys are striking straight at the heart of darkness, the epicenter of all evil, and the beast isn’t going to die without a great struggle. Investors don’t want to hear this. Also, when and if the beast does die in S. Waziristan, then the whack-a-mole effect will cause an increased Islamic flare-up elsewhere such as Yemen or Somalia. Investors might not like that either. Yemen produced 108 million barrels of oil last year. Investors won’t like the beast getting close to Mid-East oil fields. Finally, Obama dithering on McChrystal’s troop request isn’t helping.
Fundamentals: September existing home sales came in very strong but analysts attributed this to a final surge in 1st time home buyer tax credit buyers, this program is effectively expired now. Congress would like to extend the home buyer giveaway but credit markets are beginning to exert discipline on US deficit spending, plus the program was riddled with fraud, so it might not get extended. The dollar has popped up this week on safe haven buying which is hurting commodities and stocks. The dollar stabilizing, oil going down, and credit markets disciplining Congress are all fundamentally good news but bad news for the asset bubble. As I’ve been saying, much of the market’s gains have been based on bubble-type asset inflation. Consider: consumer stocks have risen in exact tandem with the price of oil. But oil and consumer stocks should be natural enemies like cats and dogs, moving in opposite directions.
Geopolitics: In Pakistan, in S. Waziristan, the Army’s multi-pronged advance is stalled on all points of attack and the Pak Air Force is ramping up helicopter gunship and F-16 sorties while the Army’s artillery pounds away. The Army says that all civilians are out of harm’s way. Whether this is true or not doesn’t matter in a military sense. If the Army and Air Force are willing to carpet every square inch of enemy territory with artillery shells and bombs, then they can kill all the bad guys given time, and it is irrelevant how many civilians are eventually pulled out of the rubble.
The strategic village of Kotkai is still under Taliban control and the Army is settling into a siege there and around other key Taliban towns. Fighting is occurring in wooded terrain, underground, and in mountains. 24 bad guys were killed and 4 good guys today in S. Waziristan. In other tribal regions, 34 bad guys were killed, and an unknown number of good guys. Fighting is unexpectedly heavy throughout bad guy territory, not just in S. Waziristan.
The Taliban assassinated a Pak Army general in Islamabad. This incident grabbed the biggest headlines in global financial journals. The war in Pakistan isn’t going as well as investors expected as indicated by a big drop in the Karachi Exchange and some of the recent overall global market weakness, but the good guys are striking straight at the heart of darkness, the epicenter of all evil, and the beast isn’t going to die without a great struggle. Investors don’t want to hear this. Also, when and if the beast does die in S. Waziristan, then the whack-a-mole effect will cause an increased Islamic flare-up elsewhere such as Yemen or Somalia. Investors might not like that either. Yemen produced 108 million barrels of oil last year. Investors won’t like the beast getting close to Mid-East oil fields. Finally, Obama dithering on McChrystal’s troop request isn’t helping.
Thursday, October 22, 2009
40 Pakistani F-16s Attack Taliban
Charts: The S&P 500 closed at 1093, up 1%. The uptrend is intact but a little shaky. Support is at 1080. Resistance is at 1100 and after that 1125.
Fundamentals: China’s Q3 GDP grew by 8.9% vs. a forecast of 9%. That tiny miss wouldn’t have rocked markets too badly except inflation expectations are coming in hotter than expected in China, indicating that the government might ease off its massive stimulus programs. This knocked down Asian markets. The sell-off had a positive effect; it buoyed the dollar which caused oil to fall, unfortunately oil inched back up toward the end of the trading day. Canada, Australia, and Brazil are making noise about lowering their currencies against the dollar. This is positive news. A continued dollar collapse and runaway oil prices will eventually clobber the global recovery. It is smart to be overweight materials stocks in this environment. S&P 500 earnings reports continue to come in better than expected.
Geopolitics: The Pak Army is engaging in a three-pronged assault in S. Waziristan. All three advances had come to a halt after the bad guys recaptured the town of Kotkai. The Taliban still controls Kotkai and the fighting is intense there with the Army fanning out into adjacent areas to clear caves and bunkers as well as rugged fortified mountaintop positions. So this prong is stalled. The Army has begun advancing again elsewhere. It is spreading out around the key town of Makeen and laboriously securing caves and mountaintop redoubts, plus blocking all possible exits. The preparations to assault Makeen will take longer than initially expected. Conflicting body counts are coming from different commanders. It seems like the Army’s kill ratio is about 5-1, fairly low but fighting in caves and so forth is extremely hazardous. The Army seems to be killing about 1.5 bad guys every hour, around the clock.
In N. Waziristan, something blew up an Al-Qaeda bomb-making factory, killing 12 bad guys including bad women and bad children. The most likely explanation is a heavy missile strike (non-drone) from US forces across the border in Afghanistan. The Army has a treaty with two N. Waziristan Talibans, but not Al-Qaeda, so the (possible) US missile attack infringes on a gray area. The N. Waziristan Talibans are actively engaged against good guys in Afghanistan and they are Al-Qaeda’s cherished allies, nevertheless the treaty is a necessary evil.
The Pak Air Force has 40 F-16 fighter-bombers. These had all been arrayed against India on the militarized frontier. Now every single F-16 is arrayed against the Taliban in S. Waziristan. Elite ground units and other gear formerly reserved for permanent stand-by against India has been redeployed in S. Waziristan. The good guys are loaded for bear in the heart of darkness.
Iran and Pakistan are making diplomatic progress concerning the two Taliban terror strikes that occurred in Iran over the last few days, dashing the bad guy’s plan to foment a war between Iran and Pakistan or even a border incursion. Bear in mind that Pakistan has nuclear weapons and Iran does not. So it is unlikely that Iran will push too hard. The Taliban has made one terror strike against India recently (in Kabul). It would be taking an enormous risk by hitting India again. However, when and if Kotkai and Makeen fall maybe H. Mehsud will want to throw a Hail Mary.
In Yemen, the northern rebels say they have overrun and captured several Yemeni Army bases, acquiring big weapon caches. There are reports that the Saudi Army is now openly engaging the northern rebels in firefights. The southern rebels (Al-Qaeda of the Arabian Peninsula) are sending suicide bombers into Saudi Arabia but they keep getting caught, which in a way is good because it forces the Saudis to get more involved in the war.
Fundamentals: China’s Q3 GDP grew by 8.9% vs. a forecast of 9%. That tiny miss wouldn’t have rocked markets too badly except inflation expectations are coming in hotter than expected in China, indicating that the government might ease off its massive stimulus programs. This knocked down Asian markets. The sell-off had a positive effect; it buoyed the dollar which caused oil to fall, unfortunately oil inched back up toward the end of the trading day. Canada, Australia, and Brazil are making noise about lowering their currencies against the dollar. This is positive news. A continued dollar collapse and runaway oil prices will eventually clobber the global recovery. It is smart to be overweight materials stocks in this environment. S&P 500 earnings reports continue to come in better than expected.
Geopolitics: The Pak Army is engaging in a three-pronged assault in S. Waziristan. All three advances had come to a halt after the bad guys recaptured the town of Kotkai. The Taliban still controls Kotkai and the fighting is intense there with the Army fanning out into adjacent areas to clear caves and bunkers as well as rugged fortified mountaintop positions. So this prong is stalled. The Army has begun advancing again elsewhere. It is spreading out around the key town of Makeen and laboriously securing caves and mountaintop redoubts, plus blocking all possible exits. The preparations to assault Makeen will take longer than initially expected. Conflicting body counts are coming from different commanders. It seems like the Army’s kill ratio is about 5-1, fairly low but fighting in caves and so forth is extremely hazardous. The Army seems to be killing about 1.5 bad guys every hour, around the clock.
In N. Waziristan, something blew up an Al-Qaeda bomb-making factory, killing 12 bad guys including bad women and bad children. The most likely explanation is a heavy missile strike (non-drone) from US forces across the border in Afghanistan. The Army has a treaty with two N. Waziristan Talibans, but not Al-Qaeda, so the (possible) US missile attack infringes on a gray area. The N. Waziristan Talibans are actively engaged against good guys in Afghanistan and they are Al-Qaeda’s cherished allies, nevertheless the treaty is a necessary evil.
The Pak Air Force has 40 F-16 fighter-bombers. These had all been arrayed against India on the militarized frontier. Now every single F-16 is arrayed against the Taliban in S. Waziristan. Elite ground units and other gear formerly reserved for permanent stand-by against India has been redeployed in S. Waziristan. The good guys are loaded for bear in the heart of darkness.
Iran and Pakistan are making diplomatic progress concerning the two Taliban terror strikes that occurred in Iran over the last few days, dashing the bad guy’s plan to foment a war between Iran and Pakistan or even a border incursion. Bear in mind that Pakistan has nuclear weapons and Iran does not. So it is unlikely that Iran will push too hard. The Taliban has made one terror strike against India recently (in Kabul). It would be taking an enormous risk by hitting India again. However, when and if Kotkai and Makeen fall maybe H. Mehsud will want to throw a Hail Mary.
In Yemen, the northern rebels say they have overrun and captured several Yemeni Army bases, acquiring big weapon caches. There are reports that the Saudi Army is now openly engaging the northern rebels in firefights. The southern rebels (Al-Qaeda of the Arabian Peninsula) are sending suicide bombers into Saudi Arabia but they keep getting caught, which in a way is good because it forces the Saudis to get more involved in the war.
Wednesday, October 21, 2009
Bad Guys Fight Back
Charts: The S&P 500 closed at 1081, down .9%. Today saw a savage reversal with an upbeat market completely turning around and plunging in the final hour. Support held at 1080. This will be a key level to watch tomorrow. The volume pattern has been bearish for two weeks now.
Fundamentals: The Fed’s Beige Book said that consumer spending is soft. Wells Fargo received a downgrade, which shook the market. The underlying problem is that the dollar keeps plunging which causes oil to soar. This is what Professor Roubinin warned against. He says that if oil hits $100 there will probably be a double-dip recession. Congress is getting ready to add another $250 billion to its healthcare reform package. This is pressuring the dollar.
Geopolitics: The Paki Army has lost ground in the most recent fighting. On the route to Makeen, it had seized the tiny Taliban village of Kotkai. This is the birthplace of H. Mehsud, the heart of darkness. The Taliban threw the Army back and recaptured Kotkai. Heavy fighting still rages around Kotkai. It is an accepted tactic to allow a powerful enemy to advance quickly and then counterattack as he gets extended. The Taliban may be doing something along these lines as it fires down upon the strung out Army from rugged mountaintop positions. So far in the campaign the Army says it has killed 115 bad guys while 16 good guys have been killed. The Taliban says that it killed 40 good guys alone in the battle for Kotkai. The Army seems to be halting its infantry, digging in and using artillery plus helicopter gunships to soften up the bad guys before it resumes advancing.
Outside of S. Waziristan, the Taliban continues to launch terror attacks. There have been numerous attacks in Pakistan and a second attack occurred in Iran where two cops were gunned down. The Iranian Revolutionary Guards are incensed, begging the Ayatollah for permission to hunt down Taliban fighters in Pakistan. The Paki Army cannot tolerate Iranian soldiers on its soil so this is a potential problem. India claims to have intelligence indicating that the Taliban are planning terror attacks within its country. The Taliban is fighting back hard and intelligently.The Afghan runoff election will be held on Nov. 7. With such a short time frame, election results will be the same as the original one. Karzai didn’t stuff ballot boxes himself. This was done by local Pushtuns throughout the country and it will happen again. I thought the international community would try to mount a huge effort at an honest election and it would occur in the spring. This quickie election is better, get the damn thing out of the way.
Fundamentals: The Fed’s Beige Book said that consumer spending is soft. Wells Fargo received a downgrade, which shook the market. The underlying problem is that the dollar keeps plunging which causes oil to soar. This is what Professor Roubinin warned against. He says that if oil hits $100 there will probably be a double-dip recession. Congress is getting ready to add another $250 billion to its healthcare reform package. This is pressuring the dollar.
Geopolitics: The Paki Army has lost ground in the most recent fighting. On the route to Makeen, it had seized the tiny Taliban village of Kotkai. This is the birthplace of H. Mehsud, the heart of darkness. The Taliban threw the Army back and recaptured Kotkai. Heavy fighting still rages around Kotkai. It is an accepted tactic to allow a powerful enemy to advance quickly and then counterattack as he gets extended. The Taliban may be doing something along these lines as it fires down upon the strung out Army from rugged mountaintop positions. So far in the campaign the Army says it has killed 115 bad guys while 16 good guys have been killed. The Taliban says that it killed 40 good guys alone in the battle for Kotkai. The Army seems to be halting its infantry, digging in and using artillery plus helicopter gunships to soften up the bad guys before it resumes advancing.
Outside of S. Waziristan, the Taliban continues to launch terror attacks. There have been numerous attacks in Pakistan and a second attack occurred in Iran where two cops were gunned down. The Iranian Revolutionary Guards are incensed, begging the Ayatollah for permission to hunt down Taliban fighters in Pakistan. The Paki Army cannot tolerate Iranian soldiers on its soil so this is a potential problem. India claims to have intelligence indicating that the Taliban are planning terror attacks within its country. The Taliban is fighting back hard and intelligently.The Afghan runoff election will be held on Nov. 7. With such a short time frame, election results will be the same as the original one. Karzai didn’t stuff ballot boxes himself. This was done by local Pushtuns throughout the country and it will happen again. I thought the international community would try to mount a huge effort at an honest election and it would occur in the spring. This quickie election is better, get the damn thing out of the way.
Tuesday, October 20, 2009
Makeen Surrounded by Paki Army
Charts: The S&P 500 closed at 1091, down .62%. The Dow is holding above 10,000 and the broad index is showing lots of support. Bonds have stopped moving in unison with stocks, returning to a traditional inverse relationship. The bubble mentality is receding. The market will have to be buoyed going forward by fundamentals.
Fundamentals: Government interventions into the private sector can be unpredictable. The private sector fundamentals for Brazil are strong but late Monday Brazil’s government unexpectedly imposed a tax on foreign investment to plug a budget gap from big election year giveaways. Brazil’s government thinks that taxing foreign investors is a painless way to raise revenue but the unintended consequence is that Brazil’s stock market tanked today, oops. On a bigger scale, the US government has decided to engineer a recovery by re-inflating the housing bubble. With virtually zero government subsidies, the US private sector is expanding in tech, export industries, and energy; this is what a true private sector recovery would look like if left unmolested by Uncle Sam. Today housing starts came in flat, calling into question whether the government’s recovery strategy is working. This was the cause for today’s sell-off.
Geopolitics: On day 3 of the S. Waziristan campaign, the Paki Army has seized and secured three more Taliban towns; among them a town specializing in training and equipping suicide bombers. The Army has rolled faster than expected to surround the key city of Makeen, H. Mehsud’s headquarters. Resistance is savage on the outskirts of this city and the Army is pounding the bad guys with massive artillery barrages. The Army’s lightening advance is slowing down. 4 good guys have been killed and 56 bad guys killed in the last 48 hours. 38 of these bad guys have been killed outside of S. Waziristan. Fighting in other tribal regions is heavier than expected. Taliban civilian terror attacks throughout the country continue at a fevered pace. And the Taliban has cleverly sent suicide bombers into Iran in an attempt to give the Paki Army a new foe. Pakistan is now embroiled in a diplomatic row with Iran.
Afghan President Karzai has agreed to a second round of voting after the first round was declared fraudulent. It would have been better if Karzai had agreed to a power-sharing arrangement with his opponent, Abdullah. An election in winter is almost impossible, so the voting will probably take place in spring, leaving a power vacuum in place for months (not good).
Fundamentals: Government interventions into the private sector can be unpredictable. The private sector fundamentals for Brazil are strong but late Monday Brazil’s government unexpectedly imposed a tax on foreign investment to plug a budget gap from big election year giveaways. Brazil’s government thinks that taxing foreign investors is a painless way to raise revenue but the unintended consequence is that Brazil’s stock market tanked today, oops. On a bigger scale, the US government has decided to engineer a recovery by re-inflating the housing bubble. With virtually zero government subsidies, the US private sector is expanding in tech, export industries, and energy; this is what a true private sector recovery would look like if left unmolested by Uncle Sam. Today housing starts came in flat, calling into question whether the government’s recovery strategy is working. This was the cause for today’s sell-off.
Geopolitics: On day 3 of the S. Waziristan campaign, the Paki Army has seized and secured three more Taliban towns; among them a town specializing in training and equipping suicide bombers. The Army has rolled faster than expected to surround the key city of Makeen, H. Mehsud’s headquarters. Resistance is savage on the outskirts of this city and the Army is pounding the bad guys with massive artillery barrages. The Army’s lightening advance is slowing down. 4 good guys have been killed and 56 bad guys killed in the last 48 hours. 38 of these bad guys have been killed outside of S. Waziristan. Fighting in other tribal regions is heavier than expected. Taliban civilian terror attacks throughout the country continue at a fevered pace. And the Taliban has cleverly sent suicide bombers into Iran in an attempt to give the Paki Army a new foe. Pakistan is now embroiled in a diplomatic row with Iran.
Afghan President Karzai has agreed to a second round of voting after the first round was declared fraudulent. It would have been better if Karzai had agreed to a power-sharing arrangement with his opponent, Abdullah. An election in winter is almost impossible, so the voting will probably take place in spring, leaving a power vacuum in place for months (not good).
Sunday, October 18, 2009
S. Waziristan Invaded!
Geopolitics: The South Waziristan campaign has started. The Paki Army began its invasion Saturday. By Sunday one Taliban town had been captured and secured with 60 bad guys killed and 5 good guys killed. The Army’s main thrust is toward a town called Makeen, H. Mehsud’s headquarters and stomping ground. North and South Waziristan contain three powerful rival Taliban militia alliances. The most powerful of all is H. Mehsud’s Taliban alliance (the Pakistani Taliban). This alliance is a dozen separate militias including H. Mehsud’s personal Mehsud tribal militia. The Pakistani Taliban commits 80% of Pakistan’s terror attacks. Sitting on top of the Pakistani Taliban is Mehsud’s tribal Taliban, the most powerful of the dozen or so smaller Talibans that make up the alliance. Obviously, H. Mehsud himself sits on top this entire evil structure.
From the opening action in the campaign we can see that the Paki Army is going straight for H. Mehsud, the Taliban super-chieftain, and his Mehsud tribal Taliban. The Army is rolling directly at his home town and the path appears to be greased by alliances from the two rival Talibans that control North Waziristan and other strategic real estate. This is good news. Remember, the North Waziristan Taliban almost killed H. Mehsud in the days following the drone strike that took out B. Mehsud. The 2 NW Talibans are potent good-bad-guys (bullish).
In Afghanistan, two or three separate firefights resulted in 14 dead bad guys and 1 dead US soldier. NATO is most likely inviting the bad guys to attack convoys and checkpoints and then walloping them in counter-attacks. This is tough on the enemy and it keeps good guy casualties down as the interminable debate grinds on in the White house on whether or not to grant McChrystal his troop request.
In Somalia, the battle lines that carve the capital city of Mogadishu between the good guys and the bad guys have become static as one side takes over a neighborhood only to be repelled after a few days of fighting and a return to the old battle lines. Outside of Mogadishu, the situation is more confusing, a lot of fighting has erupted between different militias but it is unclear who the good guys and bad guys are. It may be a good thing that Al-Shabab has less control over the country. For this to be so we must believe that the ensuing chaos and anarchy is better than Al-Shabab control, which is probably the case.
In Yemen, the government reports that recent fighting has resulted in 44 dead bad guys. The fighting is heavy with tanks, artillery and warplanes pounding bad guys around the key city of Sa’adah. The Yemeni Army says that it has captured the rebel’s field commander. Battlefield developments are therefore good. The bad guys are supported by Iran and a top level Iranian diplomat is now meeting with Yemeni diplomats. This too looks good. Maybe Iran will pull the rug out from under its puppets. Yemen’s separate rebellion to the south bubbles along. If the northern rebels are defeated, the government will turn to the south, these bad guys are Al-Qaeda and need to get whacked.
From the opening action in the campaign we can see that the Paki Army is going straight for H. Mehsud, the Taliban super-chieftain, and his Mehsud tribal Taliban. The Army is rolling directly at his home town and the path appears to be greased by alliances from the two rival Talibans that control North Waziristan and other strategic real estate. This is good news. Remember, the North Waziristan Taliban almost killed H. Mehsud in the days following the drone strike that took out B. Mehsud. The 2 NW Talibans are potent good-bad-guys (bullish).
In Afghanistan, two or three separate firefights resulted in 14 dead bad guys and 1 dead US soldier. NATO is most likely inviting the bad guys to attack convoys and checkpoints and then walloping them in counter-attacks. This is tough on the enemy and it keeps good guy casualties down as the interminable debate grinds on in the White house on whether or not to grant McChrystal his troop request.
In Somalia, the battle lines that carve the capital city of Mogadishu between the good guys and the bad guys have become static as one side takes over a neighborhood only to be repelled after a few days of fighting and a return to the old battle lines. Outside of Mogadishu, the situation is more confusing, a lot of fighting has erupted between different militias but it is unclear who the good guys and bad guys are. It may be a good thing that Al-Shabab has less control over the country. For this to be so we must believe that the ensuing chaos and anarchy is better than Al-Shabab control, which is probably the case.
In Yemen, the government reports that recent fighting has resulted in 44 dead bad guys. The fighting is heavy with tanks, artillery and warplanes pounding bad guys around the key city of Sa’adah. The Yemeni Army says that it has captured the rebel’s field commander. Battlefield developments are therefore good. The bad guys are supported by Iran and a top level Iranian diplomat is now meeting with Yemeni diplomats. This too looks good. Maybe Iran will pull the rug out from under its puppets. Yemen’s separate rebellion to the south bubbles along. If the northern rebels are defeated, the government will turn to the south, these bad guys are Al-Qaeda and need to get whacked.
Friday, October 16, 2009
Dow Under 10,000
Charts: The S&P 500 closed at 1088, down .8%. The Dow closed at 9996. Retail investors will be disappointed that Dow 10,000 did not hold. Professional investors are relieved that support held for the broad index at 1080. The rally needs retail investors at this point.
Fundamentals: Some people consider GE to be the ultimate bellwether because the gigantic and sprawling conglomerate mirrors the entire US economy with its disparate holdings and businesses. GE reported a bottom line beat but revenue was a nasty miss. Investors have stopped drinking the Kool-Aid and are now demanding revenue beats. GE’s weak performance is the reason for today’s sell-off.
Geopolitics: The Paki Army is still building its ground forces around the border of South Waziristan. The two mechanized divisions are being fortified with infantrymen. As Paki troops pour into launch points the Taliban attack them with mortar fire, killing 3 good guys Friday. Helicopter gunships have joined jet fighter-bombers in the aerial assault. The bad guys are fighting back. Terror attacks in the rest of Pakistan are reaching a bloody crescendo. A wall of steel is about to slam into the bad guys in South Waziristan but a wave of terror attacks is smashing into the soft civilian underbelly of Pakistan’s non-tribal regions.
In Yemen, government security forces have captured a number of suicide bombers streaming up from the southern part of the country where a second rebellion bubbles menacingly alongside the exploding one to the north. It is not a good sign that the southern rebellion is heating up while open warfare rages to the north. However, every day brings more evidence of Saudi military aid to the beleaguered Yemeni government and Yemeni Army. The northern rebels are supported by Iran, therefore the Yemen war is in some ways a proxy struggle between Saudi Arabia (good guys) and Iran (bad guys).
The Somali war rages on and it is taking some interesting turns. Hizbul Islam did not attack its partner, Al-Shabab. Initial reports were inaccurate. We have to learn the name of a new militia: Ahlu Sunnah. This group is sponsored by the Somali government/CIA and consequently Ahlu Sunnah fighters are good guys, powerful good guys apparently. Earlier this week, Ahlu Sunnah attacked an Al-Shabab village, beat the tar out of the super-bad-guys, and seized control of the village. Ahlu Sunnah has been fighting Al-Shabab for two years. Only within the last few days have we learned that these powerful good guys are a serious threat to the super-bad-guys.
The Kenyan Parliament is angrily investigating reports that its military is raising a small good guy militia of about 300 fighters near the Somali border to use against Al-Shabab. The Kenyan Parliament didn’t authorize this action and doesn’t like its Army doing the bidding of the CIA and getting Kenya embroiled in the Somali war. Too late, Kenya is already embroiled. Damn those CIA meddlers.
Obama met face to face with General McChrystal earlier this week. Rumors are swirling out of the Pentagon that Obama is going for the McChrystal Plan with 40,000 new troops. This is according to the Financial Times. If the FT story is accurate, it is a bullish development.
Fundamentals: Some people consider GE to be the ultimate bellwether because the gigantic and sprawling conglomerate mirrors the entire US economy with its disparate holdings and businesses. GE reported a bottom line beat but revenue was a nasty miss. Investors have stopped drinking the Kool-Aid and are now demanding revenue beats. GE’s weak performance is the reason for today’s sell-off.
Geopolitics: The Paki Army is still building its ground forces around the border of South Waziristan. The two mechanized divisions are being fortified with infantrymen. As Paki troops pour into launch points the Taliban attack them with mortar fire, killing 3 good guys Friday. Helicopter gunships have joined jet fighter-bombers in the aerial assault. The bad guys are fighting back. Terror attacks in the rest of Pakistan are reaching a bloody crescendo. A wall of steel is about to slam into the bad guys in South Waziristan but a wave of terror attacks is smashing into the soft civilian underbelly of Pakistan’s non-tribal regions.
In Yemen, government security forces have captured a number of suicide bombers streaming up from the southern part of the country where a second rebellion bubbles menacingly alongside the exploding one to the north. It is not a good sign that the southern rebellion is heating up while open warfare rages to the north. However, every day brings more evidence of Saudi military aid to the beleaguered Yemeni government and Yemeni Army. The northern rebels are supported by Iran, therefore the Yemen war is in some ways a proxy struggle between Saudi Arabia (good guys) and Iran (bad guys).
The Somali war rages on and it is taking some interesting turns. Hizbul Islam did not attack its partner, Al-Shabab. Initial reports were inaccurate. We have to learn the name of a new militia: Ahlu Sunnah. This group is sponsored by the Somali government/CIA and consequently Ahlu Sunnah fighters are good guys, powerful good guys apparently. Earlier this week, Ahlu Sunnah attacked an Al-Shabab village, beat the tar out of the super-bad-guys, and seized control of the village. Ahlu Sunnah has been fighting Al-Shabab for two years. Only within the last few days have we learned that these powerful good guys are a serious threat to the super-bad-guys.
The Kenyan Parliament is angrily investigating reports that its military is raising a small good guy militia of about 300 fighters near the Somali border to use against Al-Shabab. The Kenyan Parliament didn’t authorize this action and doesn’t like its Army doing the bidding of the CIA and getting Kenya embroiled in the Somali war. Too late, Kenya is already embroiled. Damn those CIA meddlers.
Obama met face to face with General McChrystal earlier this week. Rumors are swirling out of the Pentagon that Obama is going for the McChrystal Plan with 40,000 new troops. This is according to the Financial Times. If the FT story is accurate, it is a bullish development.
Thursday, October 15, 2009
Pakistan's Ring Of Steel
Charts: The S&P 500 closed at 1097, up .41%. With oil up yet again, energy stocks rocked while financials slumped. Technical indicators are bullish. Throughout this rally oil has gone up with stocks. That trend is holding up so far. Oil has broken through the $75 resistance. Oil and non-energy stocks can’t rally together forever.
Fundamentals: During this earnings season investors are punishing companies that report revenue misses, even if the bottom line beats. This is good news and bad news. It’s good because investors have stopped drinking the Kool-Aid; they aren’t blindly shoveling money into stocks regardless of the fundies. The bad news is that the current bull market has been built to some degree on just that sort of bubble mentality and the fundies are good but not great in the short term and horrible in the long term. The price of oil keeps rocking up, another concern.
Geopolitics: Pakistani fighter-bombers increased the bombing tempo in South Waziristan, pounding Taliban training camps, barracks, and homes with a constant barrage. Two mechanized divisions of the Pakistani Army with at least 30,000 troops have assembled at various launch points, surrounding the region in a ring of steel. Tanks and artillery are positioned to attack bad guy strongholds from several different angles. Helicopter gunships are poised to take off. Civilians are streaming out of the region in a torrent. The aura of a gathering storm hangs over the tribal land.
Fundamentals: During this earnings season investors are punishing companies that report revenue misses, even if the bottom line beats. This is good news and bad news. It’s good because investors have stopped drinking the Kool-Aid; they aren’t blindly shoveling money into stocks regardless of the fundies. The bad news is that the current bull market has been built to some degree on just that sort of bubble mentality and the fundies are good but not great in the short term and horrible in the long term. The price of oil keeps rocking up, another concern.
Geopolitics: Pakistani fighter-bombers increased the bombing tempo in South Waziristan, pounding Taliban training camps, barracks, and homes with a constant barrage. Two mechanized divisions of the Pakistani Army with at least 30,000 troops have assembled at various launch points, surrounding the region in a ring of steel. Tanks and artillery are positioned to attack bad guy strongholds from several different angles. Helicopter gunships are poised to take off. Civilians are streaming out of the region in a torrent. The aura of a gathering storm hangs over the tribal land.
Wednesday, October 14, 2009
Intel Lights A Fire. Dow Over 10,000
Charts: The S&P 500 closed at 1092, up 1.8%. The index blew past resistance at 1080. The big boys had been waiting out the most recent rally to see Intel’s earnings. Liking what they saw with Intel’s report, institutional investors hit the buy button today and volume now looks better. The Dow closed above 10,000 which was a significant resistance level. Retail investors pay attention to the Dow. If the Dow holds above 10,000 as we move out of the treacherous month of October and into the seasonally strong Santa Claus months, individual investors should pile on.
Fundamentals: Intel reported blowout numbers top and bottom line. It said PC sales are ramping up. Intel is a bellwether. Its beat last earnings season ignited a big rally and this is where we want to see leadership, from tech. American retail sales came in better than expected even though consumer credit is shrinking. Tired of being frugal, Americans are opening up their wallets and paying cash. China’s recent industrial weakness does indeed look like an “air pocket” because it reported an improvement in exports. The dollar continues to plummet and oil keeps surging. Oil’s unending rocket ship ride up carries obvious danger to the bull market. Material stocks and resource rich country ETFs like Brazil, Canada, and Australia are a hedge against this danger. Brazil=EWZ and BRF. Canada=EWC. Australia=EWA.
Geopolitics: The fruits of America’s first victory in the Long War are ripening. Iraq is slowly forging deals with the Western oil majors to develop its vast oil fields. Iraq has so much oil it could singlehandedly drive down global energy costs once the majors are 100% on board.
America’s allies in the Afghan war are aware of President Obama’s game of waiting for healthcare to pass before getting serious about Afghanistan. To goose the reluctant commander-in-chief, some of our stronger European allies are planning their own troop increases. Britain says 500 new troops are being considered. Georgia is planning on sending an entire 1000-troop battalion straight into the nastiest region of Afghanistan, Helmand Province. Macedonia and others are also ponying up dozens of fresh soldiers. American opinion polls are unexpectedly strengthening in favor of the troop request. But the favorable turn is due almost entirely too Republican support, which is sky-high. It would be better if Demos jumped on board. Nevertheless, pressure is increasing on Obama to make his decision sooner rather than later. If the troop request is granted before healthcare passes, then healthcare might not pass (bullish). Let’s not get overly excited, but the market loves more guns and no butter.
Specific Stocks: At long last we now know how China is going to shut down its thousands of inefficient small steel mills, by modifying its tax code to encourage big mills to buy up and close small mills. Since China will soon produce 50% of global steel, this long awaited change will rock the global steel industry with countless ramifications. Let’s talk about just one today. Brazilian iron ore is higher grade than Australian ore and better for the smaller mills that will be closed. Australian iron ore is closer to China, takes less fuel to transport over the sea, and the big mills like it. So the surge in oil prices and closing of small mills helps Australian miners Rio Tinto (RTP) and BHP. BHP and RTP are jointly developing mines in Australia, which disproportionately helps RTP. Material stocks should be balanced with tech. SMU is a good Semiconductor index.
Fundamentals: Intel reported blowout numbers top and bottom line. It said PC sales are ramping up. Intel is a bellwether. Its beat last earnings season ignited a big rally and this is where we want to see leadership, from tech. American retail sales came in better than expected even though consumer credit is shrinking. Tired of being frugal, Americans are opening up their wallets and paying cash. China’s recent industrial weakness does indeed look like an “air pocket” because it reported an improvement in exports. The dollar continues to plummet and oil keeps surging. Oil’s unending rocket ship ride up carries obvious danger to the bull market. Material stocks and resource rich country ETFs like Brazil, Canada, and Australia are a hedge against this danger. Brazil=EWZ and BRF. Canada=EWC. Australia=EWA.
Geopolitics: The fruits of America’s first victory in the Long War are ripening. Iraq is slowly forging deals with the Western oil majors to develop its vast oil fields. Iraq has so much oil it could singlehandedly drive down global energy costs once the majors are 100% on board.
America’s allies in the Afghan war are aware of President Obama’s game of waiting for healthcare to pass before getting serious about Afghanistan. To goose the reluctant commander-in-chief, some of our stronger European allies are planning their own troop increases. Britain says 500 new troops are being considered. Georgia is planning on sending an entire 1000-troop battalion straight into the nastiest region of Afghanistan, Helmand Province. Macedonia and others are also ponying up dozens of fresh soldiers. American opinion polls are unexpectedly strengthening in favor of the troop request. But the favorable turn is due almost entirely too Republican support, which is sky-high. It would be better if Demos jumped on board. Nevertheless, pressure is increasing on Obama to make his decision sooner rather than later. If the troop request is granted before healthcare passes, then healthcare might not pass (bullish). Let’s not get overly excited, but the market loves more guns and no butter.
Specific Stocks: At long last we now know how China is going to shut down its thousands of inefficient small steel mills, by modifying its tax code to encourage big mills to buy up and close small mills. Since China will soon produce 50% of global steel, this long awaited change will rock the global steel industry with countless ramifications. Let’s talk about just one today. Brazilian iron ore is higher grade than Australian ore and better for the smaller mills that will be closed. Australian iron ore is closer to China, takes less fuel to transport over the sea, and the big mills like it. So the surge in oil prices and closing of small mills helps Australian miners Rio Tinto (RTP) and BHP. BHP and RTP are jointly developing mines in Australia, which disproportionately helps RTP. Material stocks should be balanced with tech. SMU is a good Semiconductor index.
Tuesday, October 13, 2009
CIA May Win Big Award
Charts: The S&P 500 closed at 1073, down .3%. It is sitting on support at 1073. Resistance is at 1080. For the last 10 days volume patterns have been bearish.
Fundamentals: Singapore reported Q3 GDP growth was a red-hot 14%, which follows blistering Q2 growth of 22%. The recovery is indeed V-shaped in some of the scorching hot tiger economies. Can they keep growing at these rates even if the US economy stumbles? We’ll find out sooner or later because the US government seems determined to torpedo the recovery with an ever increasing debt load. The latest version of the Baucus healthcare bill claims to be roughly budget-neutral (over 10 years) because it includes $500 billion in phony Medicare cuts to offset $500 billion in new giveaways. These cuts will never happen because they are designed to be easily ignored by future Congresses, closely patterned after tens of billions worth of existing phony Medicare cuts that have been consistently ignored since 2003. There is also another $200 billion worth of smoke and mirrors in the Baucus bill that we won’t analyze to save space. The worst provisions of the stimulus program are being extended, COBRA healthcare subsidies and unemployment benefits, making them into new quasi-permanent entitlements. The home buyer tax credit may also become quasi-permanent. So the US deficit will keep exploding while other high debt countries like Singapore will be lowering goverment borrowing and low debt countries will start racking up surpluses. The dollar is tanking in response and oil is rocketing up. If oil gets high enough it will choke the recovery in Singapore as well as America. The dollar’s decline can also be traced to Obama’s refusal to quickly implement the McChrystal Plan.
Geopolitcs: General McChrystal is offering one plan with three different troop requests: A) Zero new troops. B) 40,000 new troops. C) 60,000 new troops. The Biden plan calls for zero new troops. So if the President really doesn’t want to add new troops to Afghanistan he could toss aside the Biden Plan and go ahead with one version of the McChrystal Plan, which any sane President would do in a heartbeat. But Obama is not doing that, instead he is threatening Congressional opponents of healthcare reform with the Biden Plan. Republicans and Blue Dogs have to roll over on healthcare before the Biden Plan goes away.
In Pakistan, the bad guys are throwing everything they’ve got into suicide bombings throughout the country, staging big flashy attacks, killing lots of civilians and good guys. The Taliban is screaming this message to the Paki voters, “Don’t invade South Waziristan!” The Army continues killing its 15 or so bad guys every day in routine operations and is putting in place final preparations for the big invasion.
In Yemen, over the last 2 weeks the Yemeni Army has killed 300 bad guys. Saudi Arabia is getting more visibly involved as the war escalates. There is now fighting in 19 different towns in northern Yemen, up from three or four a month ago. The Yemeni Army is doing an excellent job in killing bad guys but it is not yet able to seize and hold ground from the rebels. Yemen is a bigger war than Afghanistan or Pakistan right now as measured by combat deaths (super scary).
The CIA is doing a fantastic job in Somalia. We hear a lot about Al-Shabab but not so much about its evil partner, Hizbul Islam. But the two militias are about equally powerful despite Al-Shabab hogging the publicity and both have been walloping the American-backed Somali government lately. In the last few days, the CIA has gotten Al-Shabab and Hizbul Islam to attack each other, taking pressure off the good guys. And then the CIA has Kenya training an anti-Al-Shabab rebel army on its border with Somalia. Al-Shabab is practically at war with Kenya at present (bullish). The CIA needs to work its magic in Yemen once it can break away from Somalia. Already having won the coveted Dave’s Golden Bull Award, the CIA is now being considered for the even more coveted Dave’s Platinum Bull Award.
Fundamentals: Singapore reported Q3 GDP growth was a red-hot 14%, which follows blistering Q2 growth of 22%. The recovery is indeed V-shaped in some of the scorching hot tiger economies. Can they keep growing at these rates even if the US economy stumbles? We’ll find out sooner or later because the US government seems determined to torpedo the recovery with an ever increasing debt load. The latest version of the Baucus healthcare bill claims to be roughly budget-neutral (over 10 years) because it includes $500 billion in phony Medicare cuts to offset $500 billion in new giveaways. These cuts will never happen because they are designed to be easily ignored by future Congresses, closely patterned after tens of billions worth of existing phony Medicare cuts that have been consistently ignored since 2003. There is also another $200 billion worth of smoke and mirrors in the Baucus bill that we won’t analyze to save space. The worst provisions of the stimulus program are being extended, COBRA healthcare subsidies and unemployment benefits, making them into new quasi-permanent entitlements. The home buyer tax credit may also become quasi-permanent. So the US deficit will keep exploding while other high debt countries like Singapore will be lowering goverment borrowing and low debt countries will start racking up surpluses. The dollar is tanking in response and oil is rocketing up. If oil gets high enough it will choke the recovery in Singapore as well as America. The dollar’s decline can also be traced to Obama’s refusal to quickly implement the McChrystal Plan.
Geopolitcs: General McChrystal is offering one plan with three different troop requests: A) Zero new troops. B) 40,000 new troops. C) 60,000 new troops. The Biden plan calls for zero new troops. So if the President really doesn’t want to add new troops to Afghanistan he could toss aside the Biden Plan and go ahead with one version of the McChrystal Plan, which any sane President would do in a heartbeat. But Obama is not doing that, instead he is threatening Congressional opponents of healthcare reform with the Biden Plan. Republicans and Blue Dogs have to roll over on healthcare before the Biden Plan goes away.
In Pakistan, the bad guys are throwing everything they’ve got into suicide bombings throughout the country, staging big flashy attacks, killing lots of civilians and good guys. The Taliban is screaming this message to the Paki voters, “Don’t invade South Waziristan!” The Army continues killing its 15 or so bad guys every day in routine operations and is putting in place final preparations for the big invasion.
In Yemen, over the last 2 weeks the Yemeni Army has killed 300 bad guys. Saudi Arabia is getting more visibly involved as the war escalates. There is now fighting in 19 different towns in northern Yemen, up from three or four a month ago. The Yemeni Army is doing an excellent job in killing bad guys but it is not yet able to seize and hold ground from the rebels. Yemen is a bigger war than Afghanistan or Pakistan right now as measured by combat deaths (super scary).
The CIA is doing a fantastic job in Somalia. We hear a lot about Al-Shabab but not so much about its evil partner, Hizbul Islam. But the two militias are about equally powerful despite Al-Shabab hogging the publicity and both have been walloping the American-backed Somali government lately. In the last few days, the CIA has gotten Al-Shabab and Hizbul Islam to attack each other, taking pressure off the good guys. And then the CIA has Kenya training an anti-Al-Shabab rebel army on its border with Somalia. Al-Shabab is practically at war with Kenya at present (bullish). The CIA needs to work its magic in Yemen once it can break away from Somalia. Already having won the coveted Dave’s Golden Bull Award, the CIA is now being considered for the even more coveted Dave’s Platinum Bull Award.
Sunday, October 11, 2009
H. Mehsud Consolidates Power
Charts: The big week we just finished saw very weak volume. Chart patterns were bullish but the volume was bearish. This means that big institutional investors did not participate in last week’s rally. They are sitting back waiting for earnings season to progress, unconvinced by two days’ worth of good news. This suggests that the big boys (institutional investors) will not tolerate much bad news this earnings season. It’s been good so far and it better stay good.
Fundamentals: The very beginning of the earnings season coincides with the confession season where companies that missed earnings forecasts in a big way come clean and fess up before their scheduled reporting date. The confession season is about over by now and it went better than expected with only a handful of companies tearfully admitting that their quarter was a bloodbath. A positive confession season is a forward looking indicator for the entire earnings season.
The Economist magazine says that the recent weak industrial numbers from America and China are only an “air pocket” and the overall global recovery is still chugging along. The weak industrial data was immediately followed by an upside surprise in American service sector data from ISM. At the same time the government said that American service sector exports increased more than expected, driving down the US trade deficit. The weak dollar is helping these exports and will juice the American and Chinese economies as long as oil continues to find resistance around $75. China’s currency is pegged to the dollar, so the G2 economies are bond together. The Euro zone seems strong enough to give a little business away to the G2. The short term picture is therefore pretty good. The long term outlook continues to be horrible, the FDIC has closed 100 failed banks so far this year with the pace picking up. Souring commercial real estate is the culprit. This is the iceberg the US economy is sailing into. The Fed is using artificially low interest rates to build up bank balance sheets, to strengthen them enough to withstand the inevitable collision. We don’t know yet how well this is going to work. On a practical level for investors these conditions favor mega-banks and therefore their stock prices.
Geopolitics: In Pakistan, Army General Headquarters (AGH=Pentagon of Pakistan) was attacked by elite Taliban commandoes, who controlled much of the facility for about one day until Paki Special Forces regained control. Several bad guys got away and are still loose in Islamabad. This incident combined with the flashy terror attack against India’s Kabul embassy a few days ago indicates the H. Mehsud has consolidated his power over the Paki Taliban and probably has a working alliance with Mullah Omar’s Afghani Taliban. It is bad news if Omar and Mehsud are working together. H. Mehsud is trying to slow down or halt the Paki Army’s impending invasion of South Waziristan. He is in effect saying to the Paki man-in-the-street, “The Army has big problems outside of S. Waziristan and needs to get its house in order before haring off on an adventure in the tribal regions. And besides look how we are killing Hindus. Do you want that to stop?” The Army’s response was to step up its jet fighter-bomber missions in S. Waziristan, killing 13 bad guys Sunday. And it is sending paramilitary police into refugee camps in massive sweeps and scooping up anybody that even resembles a bad guy, an action that suggests the big invasion is getting closer. Finally, the Army made public statements that essentially said H. Mehsud is only pissing it off.
Specific Stocks: Credit Suisse (CS) is best in breed for investment banks and asset management. The small cap Brazil index (BRF) should outperform Brazilian large caps as long as the global bull market remains intact. Baidu (BIDU) is best in breed for Chinese language search.
Fundamentals: The very beginning of the earnings season coincides with the confession season where companies that missed earnings forecasts in a big way come clean and fess up before their scheduled reporting date. The confession season is about over by now and it went better than expected with only a handful of companies tearfully admitting that their quarter was a bloodbath. A positive confession season is a forward looking indicator for the entire earnings season.
The Economist magazine says that the recent weak industrial numbers from America and China are only an “air pocket” and the overall global recovery is still chugging along. The weak industrial data was immediately followed by an upside surprise in American service sector data from ISM. At the same time the government said that American service sector exports increased more than expected, driving down the US trade deficit. The weak dollar is helping these exports and will juice the American and Chinese economies as long as oil continues to find resistance around $75. China’s currency is pegged to the dollar, so the G2 economies are bond together. The Euro zone seems strong enough to give a little business away to the G2. The short term picture is therefore pretty good. The long term outlook continues to be horrible, the FDIC has closed 100 failed banks so far this year with the pace picking up. Souring commercial real estate is the culprit. This is the iceberg the US economy is sailing into. The Fed is using artificially low interest rates to build up bank balance sheets, to strengthen them enough to withstand the inevitable collision. We don’t know yet how well this is going to work. On a practical level for investors these conditions favor mega-banks and therefore their stock prices.
Geopolitics: In Pakistan, Army General Headquarters (AGH=Pentagon of Pakistan) was attacked by elite Taliban commandoes, who controlled much of the facility for about one day until Paki Special Forces regained control. Several bad guys got away and are still loose in Islamabad. This incident combined with the flashy terror attack against India’s Kabul embassy a few days ago indicates the H. Mehsud has consolidated his power over the Paki Taliban and probably has a working alliance with Mullah Omar’s Afghani Taliban. It is bad news if Omar and Mehsud are working together. H. Mehsud is trying to slow down or halt the Paki Army’s impending invasion of South Waziristan. He is in effect saying to the Paki man-in-the-street, “The Army has big problems outside of S. Waziristan and needs to get its house in order before haring off on an adventure in the tribal regions. And besides look how we are killing Hindus. Do you want that to stop?” The Army’s response was to step up its jet fighter-bomber missions in S. Waziristan, killing 13 bad guys Sunday. And it is sending paramilitary police into refugee camps in massive sweeps and scooping up anybody that even resembles a bad guy, an action that suggests the big invasion is getting closer. Finally, the Army made public statements that essentially said H. Mehsud is only pissing it off.
Specific Stocks: Credit Suisse (CS) is best in breed for investment banks and asset management. The small cap Brazil index (BRF) should outperform Brazilian large caps as long as the global bull market remains intact. Baidu (BIDU) is best in breed for Chinese language search.
Friday, October 9, 2009
Overall Picture Is Bullish
Charts: The S&P 500 closed at 1071, up .56%. The market fought psychological resistance at 1070 all afternoon before proving victorious. Technical resistance of 1073 is the next battle. Uptrend intact.
Fundamentals: The back-to-school shopping season was a bit better than forecast. US weekly jobless claims also came in better yesterday, although the most recent monthly report was bad. Canada reports that its jobs picture is getting much better; a sign that the global recovery is uneven but there is in fact a recovery that is spreading. And the pattern of good top line and bottom line earning beats is intact. An earnings pattern like this is usually established after a week or so has gone by. If that happens, the odds of the rally continuing through the entire season are good.
Geopolitics: Last night the White House made noise about actually liking the Biden Plan. I might have misinterpreted the meaning of the US Army’s rush to implement the Gates Plan without White House approval. Rather than good news it might be a sign that the Pentagon is trying to preempt a bad call by the administration. And yesterday I may have overstated how hard the Pentagon can sometimes push the White House around; usually the generals and admirals have to salute the President and say, “Yes sir!” to whatever he says. This all boils down to the Biden Plan still being very much alive (scary). If Obama really wants to push the B Plan down the Pentagon’s throat he has the ability to do so. We are trying to predict the actions of a single man, the President, an inherently impossible task.
Obama might be seduced by the sweet siren song of the B Plan. And like the mythic Greek sailors that listened to the original siren song, a disaster looms today in these treacherous lyrics: “America has no need to patrol the streets of Kandahar and risk getting hit by IEDs. There is no need to teach Afghan soldiers to patrol and fight under combat conditions. Afghani soldiers can be taught in a safe classroom with chalk and blackboards, and then sent out into combat all by themselves without American embedded trainers and troops at their side. American soldiers can stay safely hidden in fortified bases, never get hurt, and still win the war.” Liberals love this stupid song, so anything is possible.
I still don’t think the Biden Plan will be implemented. To actually push it down the Pentagon’s throat the President would have to fire McChrystal and replace him with some tame general that we’ve never heard of. Seems unlikely. Is Obama simply putting on the biggest snow-job ever to pacify his liberal base?
Meanwhile, the Paki Army killed 17 bad guys Friday. This reminds us that the war isn’t really being fought in Washington D.C. The Paki Army is stacking up dead bad guys like cord wood in the real war. The invasion of South Waziristan appears to be on track.
Fundamentals: The back-to-school shopping season was a bit better than forecast. US weekly jobless claims also came in better yesterday, although the most recent monthly report was bad. Canada reports that its jobs picture is getting much better; a sign that the global recovery is uneven but there is in fact a recovery that is spreading. And the pattern of good top line and bottom line earning beats is intact. An earnings pattern like this is usually established after a week or so has gone by. If that happens, the odds of the rally continuing through the entire season are good.
Geopolitics: Last night the White House made noise about actually liking the Biden Plan. I might have misinterpreted the meaning of the US Army’s rush to implement the Gates Plan without White House approval. Rather than good news it might be a sign that the Pentagon is trying to preempt a bad call by the administration. And yesterday I may have overstated how hard the Pentagon can sometimes push the White House around; usually the generals and admirals have to salute the President and say, “Yes sir!” to whatever he says. This all boils down to the Biden Plan still being very much alive (scary). If Obama really wants to push the B Plan down the Pentagon’s throat he has the ability to do so. We are trying to predict the actions of a single man, the President, an inherently impossible task.
Obama might be seduced by the sweet siren song of the B Plan. And like the mythic Greek sailors that listened to the original siren song, a disaster looms today in these treacherous lyrics: “America has no need to patrol the streets of Kandahar and risk getting hit by IEDs. There is no need to teach Afghan soldiers to patrol and fight under combat conditions. Afghani soldiers can be taught in a safe classroom with chalk and blackboards, and then sent out into combat all by themselves without American embedded trainers and troops at their side. American soldiers can stay safely hidden in fortified bases, never get hurt, and still win the war.” Liberals love this stupid song, so anything is possible.
I still don’t think the Biden Plan will be implemented. To actually push it down the Pentagon’s throat the President would have to fire McChrystal and replace him with some tame general that we’ve never heard of. Seems unlikely. Is Obama simply putting on the biggest snow-job ever to pacify his liberal base?
Meanwhile, the Paki Army killed 17 bad guys Friday. This reminds us that the war isn’t really being fought in Washington D.C. The Paki Army is stacking up dead bad guys like cord wood in the real war. The invasion of South Waziristan appears to be on track.
Thursday, October 8, 2009
Earnings Looking Strong On Day 2
Charts: The S&P 500 closed at 1065, up .7%. Leadership is good. The third rally leg is intact. Resistance is at 1073.
Fundamentals: Costco and Alcoa started the earnings season with beats on the top and bottom line. Last season the beats were mostly on the bottom line with revenue growth surprising to the downside and cost-cutting efforts surprising to the upside. Two days into the season and the news is good so far, higher quality earnings.
Geopolitics: Recent news on the Gates Plan is very good. Gates seems to have convinced powerful peacenik Congressman Murtha, head of a military appropriation panel, to support the 20,000 extra troops and hence the entire package. Without White House permission, the Army is pedal to the metal implementing the G. Plan. It is already building up its military prison system, anticipating an influx of tens of thousands of bad guy prisoners. This move violates the Biden Plan. The Pentagon is therefore picking one plan over the other on its own. Over the years the Pentagon has a much greater tendency to disobey the White House than the average American supposes or reads in high school history books. For instance, during the Cuban Missile Crisis the Air Force test-fired several ICBMs over the Soviet Union essentially without JFK’s approval. This was the actual reason for the Soviets blinking, not JFK’s jutted jaw as he yammered on the phone to Khrushchev. A rogue Pentagon is historically bullish because it terrifies American adversaries. While this is all wonderful, the Biden Plan is still alive, so let’s be thorough and analyze the pinhead plan.
General McChrystal was answering questions after giving a speech to a group of military experts in London when an attendee asked if the B. Plan would work. McChrystal replied, “The short answer is no.” He went on to say the B. Plan would turn Afghanistan into “Chaos-istan.” Biden looks at only one statistic: the casualty rates when US troops are on patrol, protecting Afghan citizens and teaching Afghan soldiers and cops how to patrol and protect civilians (in other words all counter-insurgency operations). Biden then says to lower US casualties the Army should only execute planned assaults on bad guy strongholds combined with zero patrolling and zero training of Afghani troops to patrol. So Biden wants to fight a counter-insurgency war as if it were WW II conventional warfare. So, big surprise, the greatest counter-insurgency expert in the world (McChrystal) is right when he says the B. Plan sucks.
Today the Paki Army killed 6 bad guys, including one top commander. The Army took 18 bad guys prisoner. The Taliban killed 15 civilians and 2 soldiers with a suicide bombing in front of the Indian embassy in Kabul, Afghanistan. The Taliban is getting desperate by going after India. This is an attempt to sway public opinion in Pakistan. It is a big risk for the Taliban to try this strategy. India can hurt the Taliban by pulling troops off the India/Pak frontier, freeing up more Paki soldiers.
Fundamentals: Costco and Alcoa started the earnings season with beats on the top and bottom line. Last season the beats were mostly on the bottom line with revenue growth surprising to the downside and cost-cutting efforts surprising to the upside. Two days into the season and the news is good so far, higher quality earnings.
Geopolitics: Recent news on the Gates Plan is very good. Gates seems to have convinced powerful peacenik Congressman Murtha, head of a military appropriation panel, to support the 20,000 extra troops and hence the entire package. Without White House permission, the Army is pedal to the metal implementing the G. Plan. It is already building up its military prison system, anticipating an influx of tens of thousands of bad guy prisoners. This move violates the Biden Plan. The Pentagon is therefore picking one plan over the other on its own. Over the years the Pentagon has a much greater tendency to disobey the White House than the average American supposes or reads in high school history books. For instance, during the Cuban Missile Crisis the Air Force test-fired several ICBMs over the Soviet Union essentially without JFK’s approval. This was the actual reason for the Soviets blinking, not JFK’s jutted jaw as he yammered on the phone to Khrushchev. A rogue Pentagon is historically bullish because it terrifies American adversaries. While this is all wonderful, the Biden Plan is still alive, so let’s be thorough and analyze the pinhead plan.
General McChrystal was answering questions after giving a speech to a group of military experts in London when an attendee asked if the B. Plan would work. McChrystal replied, “The short answer is no.” He went on to say the B. Plan would turn Afghanistan into “Chaos-istan.” Biden looks at only one statistic: the casualty rates when US troops are on patrol, protecting Afghan citizens and teaching Afghan soldiers and cops how to patrol and protect civilians (in other words all counter-insurgency operations). Biden then says to lower US casualties the Army should only execute planned assaults on bad guy strongholds combined with zero patrolling and zero training of Afghani troops to patrol. So Biden wants to fight a counter-insurgency war as if it were WW II conventional warfare. So, big surprise, the greatest counter-insurgency expert in the world (McChrystal) is right when he says the B. Plan sucks.
Today the Paki Army killed 6 bad guys, including one top commander. The Army took 18 bad guys prisoner. The Taliban killed 15 civilians and 2 soldiers with a suicide bombing in front of the Indian embassy in Kabul, Afghanistan. The Taliban is getting desperate by going after India. This is an attempt to sway public opinion in Pakistan. It is a big risk for the Taliban to try this strategy. India can hurt the Taliban by pulling troops off the India/Pak frontier, freeing up more Paki soldiers.
Wednesday, October 7, 2009
Earnings Season Is Here
Charts: The S&P 500 closed at 1058, up .27%. The third rally leg of the bull market is still intact according to the charts. In the recent downdraft, the 1018 breakout point was not violated. Today was a choppy session with the index swinging from red to green four times. Earnings season starts today and today’s session reflects investor uncertainty. Analysts forecast a 25% decline in S&P 500 earnings. Beats or misses will determine the course of the rally and charts are not important.
Fundamentals: The Australian central bank raised interest rates yesterday, triggering a bout of euphoria. The market is conditioned to respond positively to the early cycle of central bank tightening after a big recession, a sign that fundies are getting better but rates are not yet so high as to siphon money into bonds or slow growth. By the mid-point of the tightening cycle, the stock market will start to hate interest rate hikes. Is Australia’s tightening the harbinger of a gradual global tightening cycle and really a sign that the global recovery is heating up? Australia is essentially one big mine and its economy is levered to commodity prices. Commodities are at least partially going up because of excess liquidity and asset inflation. This kind of inflation will turn into headline inflation in Australia quicker than anywhere else. So the Aussie rate hike is not that meaningful. On the same day that the Aussie dollar was soaring, the Latvian currency teetered on the brink of collapse.
Geopolitics: On Oct. 3, in Afghanistan, several hundred Taliban fighters attacked a remote US Army base, leaving 8 US soldiers and 2 Afghanis dead. The Pentagon saw the hay being made by the liberal media over this attack and belatedly released a bad guy body count; over 100 bad guys were killed. So it is suicidal for the Taliban to keep attacking US bases, more so going forward as the two huge Army intelligence units come on line as well as CIA drone flights. The Taliban can only sustain these kinds of losses if it translates into a big shift in US public opinion against the war. But public opinion is already low and Obama seems to be saying that Defense Secretary Robert Gates will decide between the Biden Plan, the Gates Plan, and the McChrystal Plan. Gates will not care about public opinion. If one of the plans is called the “Gates Plan” and the guy deciding is named “Gates,” then which plan is likely to be picked?
The Pakistani Air Force is running bombing missions in South Waziristan, killing numerous bad guys. Paki civilian leaders are increasingly talking about and justifying the coming offensive in S. Waziristan. The Taliban is lashing out with showy suicide bombings. President Obama has said no matter what the US is not pulling any troops out of Afghanistan, which means the Paki Army is not alone. A massive US foreign aid package is pouring money into Pakistan. All this adds up to the big offensive being imminent.
Fundamentals: The Australian central bank raised interest rates yesterday, triggering a bout of euphoria. The market is conditioned to respond positively to the early cycle of central bank tightening after a big recession, a sign that fundies are getting better but rates are not yet so high as to siphon money into bonds or slow growth. By the mid-point of the tightening cycle, the stock market will start to hate interest rate hikes. Is Australia’s tightening the harbinger of a gradual global tightening cycle and really a sign that the global recovery is heating up? Australia is essentially one big mine and its economy is levered to commodity prices. Commodities are at least partially going up because of excess liquidity and asset inflation. This kind of inflation will turn into headline inflation in Australia quicker than anywhere else. So the Aussie rate hike is not that meaningful. On the same day that the Aussie dollar was soaring, the Latvian currency teetered on the brink of collapse.
Geopolitics: On Oct. 3, in Afghanistan, several hundred Taliban fighters attacked a remote US Army base, leaving 8 US soldiers and 2 Afghanis dead. The Pentagon saw the hay being made by the liberal media over this attack and belatedly released a bad guy body count; over 100 bad guys were killed. So it is suicidal for the Taliban to keep attacking US bases, more so going forward as the two huge Army intelligence units come on line as well as CIA drone flights. The Taliban can only sustain these kinds of losses if it translates into a big shift in US public opinion against the war. But public opinion is already low and Obama seems to be saying that Defense Secretary Robert Gates will decide between the Biden Plan, the Gates Plan, and the McChrystal Plan. Gates will not care about public opinion. If one of the plans is called the “Gates Plan” and the guy deciding is named “Gates,” then which plan is likely to be picked?
The Pakistani Air Force is running bombing missions in South Waziristan, killing numerous bad guys. Paki civilian leaders are increasingly talking about and justifying the coming offensive in S. Waziristan. The Taliban is lashing out with showy suicide bombings. President Obama has said no matter what the US is not pulling any troops out of Afghanistan, which means the Paki Army is not alone. A massive US foreign aid package is pouring money into Pakistan. All this adds up to the big offensive being imminent.
Tuesday, October 6, 2009
McChrystal Attacks Biden
Charts: The S&P 500 closed at 1055, up 1.4. The index is up 1.9% on the week, popping through 2 support levels. The technical picture looks better but earnings season starts tomorrow so charts are not important.
Fundamentals: Two weeks’ of industrial sector data has come in worse than expected in China and America. On Monday American service sector data came in better than expected, although the job growth component disappointed. This data shows that the industrial activity reversal in the US and China has not yet spread to the America service sector (3/4 of US economy). Outside the G2, recent industrial and service sector data from the EU has come in slightly better than expected. The relative strength in the Euro zone means the dollar and Chinese yuan continue to weaken, which helps American and Chinese industrials and thus mitigates to some degree their recent weakness.
Geopolitics: General McChrystal is now publically attacking the Biden plan. In a major speech in London McChrystal flatly stated that the Biden plan “wouldn’t work.” Secretary Gates immediately ordered Biden and McChrystal to stop debating in public over the three plans being vetted by the President, giving McChrystal the last word (bullish). Meanwhile, the Pentagon announced that it is putting the pedal to the metal and rolling out the McChrystal Plan as quickly as possible with the opening if two big Army intelligence units in Afghanistan. The Pentagon in effect is saying it expects the President to pick the McChrystal Plan so it needs to get moving before winter hits in Afghanistan. It promised to reverse the steps that it is now taking if the President actually does pick the pinhead plan.
The Taliban has killed 18 American soldiers so far in October, a pace twice as high as anything seen up till now in Afghanistan. This is the Taliban Tet Offensive (TTO), meant to influence the debate in D.C. The Taliban can only really hit outlying US bases that have small numbers of troops. McChrystal could easily evacuate a lot of these bases and fortify the rest. This would lower good guy body count. Or he might do something unpredictable and use the TTO to his advantage. For example, the Taliban must mass hundreds of fighters to overrun even a small US base. They may be vulnerable to drones as they mass. Also, the high good guy death count from IEDs will come down when the Army starts fielding its new mine-proof Afghan-only trucks, different from the trucks used in Iraq.
Fundamentals: Two weeks’ of industrial sector data has come in worse than expected in China and America. On Monday American service sector data came in better than expected, although the job growth component disappointed. This data shows that the industrial activity reversal in the US and China has not yet spread to the America service sector (3/4 of US economy). Outside the G2, recent industrial and service sector data from the EU has come in slightly better than expected. The relative strength in the Euro zone means the dollar and Chinese yuan continue to weaken, which helps American and Chinese industrials and thus mitigates to some degree their recent weakness.
Geopolitics: General McChrystal is now publically attacking the Biden plan. In a major speech in London McChrystal flatly stated that the Biden plan “wouldn’t work.” Secretary Gates immediately ordered Biden and McChrystal to stop debating in public over the three plans being vetted by the President, giving McChrystal the last word (bullish). Meanwhile, the Pentagon announced that it is putting the pedal to the metal and rolling out the McChrystal Plan as quickly as possible with the opening if two big Army intelligence units in Afghanistan. The Pentagon in effect is saying it expects the President to pick the McChrystal Plan so it needs to get moving before winter hits in Afghanistan. It promised to reverse the steps that it is now taking if the President actually does pick the pinhead plan.
The Taliban has killed 18 American soldiers so far in October, a pace twice as high as anything seen up till now in Afghanistan. This is the Taliban Tet Offensive (TTO), meant to influence the debate in D.C. The Taliban can only really hit outlying US bases that have small numbers of troops. McChrystal could easily evacuate a lot of these bases and fortify the rest. This would lower good guy body count. Or he might do something unpredictable and use the TTO to his advantage. For example, the Taliban must mass hundreds of fighters to overrun even a small US base. They may be vulnerable to drones as they mass. Also, the high good guy death count from IEDs will come down when the Army starts fielding its new mine-proof Afghan-only trucks, different from the trucks used in Iraq.
Sunday, October 4, 2009
Biden Plan is Bearish
Geopolitics: Three Islamic insurgencies have been successfully quelled so far in the Long War: Chechnya, Iraq, and the Swat Valley. All three have gone through open rebellion, a war that crushed the rebellion, a successful occupation by the conquering power, and a gradual handover to a local security force. In the case of Chechnya, the occupation by Russian soldiers was abruptly, prematurely, and stupidly ended a few months ago, before the handover was complete, possibly bringing the Chechen Islamic rebellion back. Up until that blunder Chechnya was in good shape. What do the three successful Islamic pacification campaigns have in common?
All three featured massive use of ground forces on the part of the national armies of the primary power: Russia, America, and Pakistan (collectively we can call them RAP), i.e. lots of boots on the ground. In each case the RAP armies fought the bad guys to a standstill while simultaneously raising and training an indigenous army and/or local militias. In all three cases, hold and clear was the only tactic that worked, any ground captured by a RAP army must then also be permanently held by large numbers of RAP troops, again lots of boots on the ground. The RAP troops are only able to leave a conquered area when a successful transfer of occupying duties to indigenous troops/militia fighters occurs. In Chechnya and Iraq, big problems occurred when indigenous forces were put into combat too quickly or occupation duties were thrust on them too quickly. Many years are needed to make the transfer work. All three RAP forces essentially followed the American counter-insurgency manual, the bible for this type of warfare.
No wonder the US anti-guerilla manual is considered so effective. America has a perfect record in counter-insurgency warfare. In the early 20th century the US Army fought a 25-year long campaign against a powerful Philippine guerilla movement and won. Vietnam is a pure success story as far as counter-insurgency is concerned. In Vietnam the primary insurgents were called Viet Cong. The last two years of the Vietnam War featured straight conventional war between north and south with tanks and warplanes, essentially WW II type combat. There was no Viet Cong guerilla movement, America had completely wiped it out. And then Iraq is still another major counter-insurgency success. That makes three big wins in the last century and with three turns at the plate America has a batting average of 1000. This tells us that the Pentagon knows what it is doing and will win in Afghanistan if the pinheads get out of the way.
There are now three plans being presented to Obama: The Biden Plan, The Gates Plan, and the McChrystal Plan. The scuttlebutt is that the Gates Plan calls for 20,000 new troops whereas the McChrystal Plan calls for 40,000 new troops and they are identical otherwise. The Biden Plan is a pinhead disaster. It calls for zero new troops and puts Biden’s personal operational philosophy above the Army counter-insurgency manual. Biden’s deeply held personal operational belief structure is about two weeks old. So both the Gates and McChrystal Plans are bullish and the Biden Plan is bearish, possibly super-bearish.
All three featured massive use of ground forces on the part of the national armies of the primary power: Russia, America, and Pakistan (collectively we can call them RAP), i.e. lots of boots on the ground. In each case the RAP armies fought the bad guys to a standstill while simultaneously raising and training an indigenous army and/or local militias. In all three cases, hold and clear was the only tactic that worked, any ground captured by a RAP army must then also be permanently held by large numbers of RAP troops, again lots of boots on the ground. The RAP troops are only able to leave a conquered area when a successful transfer of occupying duties to indigenous troops/militia fighters occurs. In Chechnya and Iraq, big problems occurred when indigenous forces were put into combat too quickly or occupation duties were thrust on them too quickly. Many years are needed to make the transfer work. All three RAP forces essentially followed the American counter-insurgency manual, the bible for this type of warfare.
No wonder the US anti-guerilla manual is considered so effective. America has a perfect record in counter-insurgency warfare. In the early 20th century the US Army fought a 25-year long campaign against a powerful Philippine guerilla movement and won. Vietnam is a pure success story as far as counter-insurgency is concerned. In Vietnam the primary insurgents were called Viet Cong. The last two years of the Vietnam War featured straight conventional war between north and south with tanks and warplanes, essentially WW II type combat. There was no Viet Cong guerilla movement, America had completely wiped it out. And then Iraq is still another major counter-insurgency success. That makes three big wins in the last century and with three turns at the plate America has a batting average of 1000. This tells us that the Pentagon knows what it is doing and will win in Afghanistan if the pinheads get out of the way.
There are now three plans being presented to Obama: The Biden Plan, The Gates Plan, and the McChrystal Plan. The scuttlebutt is that the Gates Plan calls for 20,000 new troops whereas the McChrystal Plan calls for 40,000 new troops and they are identical otherwise. The Biden Plan is a pinhead disaster. It calls for zero new troops and puts Biden’s personal operational philosophy above the Army counter-insurgency manual. Biden’s deeply held personal operational belief structure is about two weeks old. So both the Gates and McChrystal Plans are bullish and the Biden Plan is bearish, possibly super-bearish.
Friday, October 2, 2009
Drones Hit Paydirt
Charts: The S&P 500 closed at 1025, down .45%. The index plunged at the opening bell on bad fundie news. It found support just above the 1018 breakout point. It rallied close to the August highs and found resistance at 1031. It was weak going into the close but managed to finish at the mid-point of the day’s range. Finding support at 1018 was encouraging, however the charts are pretty grim. Earnings season is just around the corner and soon charts will become less important because the market will care more about actual results.
Fundamentals: The government’s monthly jobs report came in much worse than expected. Most worrisome is the reversal in the average work week, which had been getting longer throughout the recovery. The work week shortened at a fairly harsh clip, growing evidence that the recovery is faltering due to stimulus programs ending and manufacturers slowing at the end of a restocking cycle.
Geopolitics: In Pakistan today, 1 good guy killed and two injured. 3 bad guys killed and 9 taken prisoner. In Afghanistan over the last 48 hours, 3 American soldiers killed, 1 British soldier killed. There is no NATO bad guy body count from Afghanistan but it probably was somewhere between 3 and 15. The CIA says that it killed Tahir Yuldashev in an Aug. 27 drone strike. Tahir was Al-Qaeda’s top Uzbek leader. Uzbekistan is an Al-Qaeda heartland and Tahir’s death is a big blow to the numerous bad guys in that region. The combo of the CIA and ISI is causing drone strikes to move up the food chain from mid-level operatives to Al-Qaeda’s top leadership.
Fundamentals: The government’s monthly jobs report came in much worse than expected. Most worrisome is the reversal in the average work week, which had been getting longer throughout the recovery. The work week shortened at a fairly harsh clip, growing evidence that the recovery is faltering due to stimulus programs ending and manufacturers slowing at the end of a restocking cycle.
Geopolitics: In Pakistan today, 1 good guy killed and two injured. 3 bad guys killed and 9 taken prisoner. In Afghanistan over the last 48 hours, 3 American soldiers killed, 1 British soldier killed. There is no NATO bad guy body count from Afghanistan but it probably was somewhere between 3 and 15. The CIA says that it killed Tahir Yuldashev in an Aug. 27 drone strike. Tahir was Al-Qaeda’s top Uzbek leader. Uzbekistan is an Al-Qaeda heartland and Tahir’s death is a big blow to the numerous bad guys in that region. The combo of the CIA and ISI is causing drone strikes to move up the food chain from mid-level operatives to Al-Qaeda’s top leadership.
Thursday, October 1, 2009
Gates Plan Dependent On Pakistan
Charts: The S&P 500 plunged to 1029, down a whopping 2.6%. The index smashed through 3 support levels. Next support is 1018, the breakout point for the third rally leg. If that is violated we are in a correction if we aren’t in one already. Volume patterns in the last few days show bigger volume on down days than up days, a sign that institutional investors are selling. Emerging markets were clobbered today so there is little hope that a weakening US market won’t drag down all global indexes like there was yesterday.
Fundamentals: The National Purchasing Manager Survey came in worse than expected today, further proof of the restocking theory (scroll down to yesterday’s blog). Weekly jobless claims came in worse than expected. Yesterday the ADP private sector jobs report came in worse than expected. Besides restocking, we could also be seeing the effects of stimulus wearing off. Clunkers is over and the first time home buyers tax credit is fading, a double whammy.
Geopolitics: What I was calling the Petraeus Plan yesterday should actually be called the Gates Plan. It appears that McChrystal, Chairmen of the Joint Chiefs Mullen, and Petraeus are 100% behind the McChrystal Plan, so that is the Pentagon Plan. Troops are coming out of Iraq on the behest of the Pentagon, not the Whitehouse, and are slated for the second Afghan surge. Neither the Gates Plan nor the Pentagon Plan has won out yet. Either one could still be implemented.
Let’s assume that the Gates Plan goes forward and ignore the other one. Congress just tripled foreign aid to Pakistan; this is part of the Gates plan; the opening move in an effort to peel the Paki Army off the Indian frontier and pour tens of thousands of fresh troops into the theatre. To make progress here the ISI’s pet terrorist group (LET) has to be offered up to the Indian government, to get India to peel its army off the frontier. An LET leader was just killed in a battle with the Paki Army, so step one seems to be going pretty well. ISI is the Paki CIA, and it is key to this entire dynamic. The CIA is now working hand in glove with the ISI in finding and destroying drone targets in Pakistan. ISI wants its own drone fleet. CIA says no but may let ISI continue partnering when the expansion of drone sorties into Afghanistan occurs.
All of this is in the very early stage and a lot has to go right to make it work. India is not yet pulling troops of the frontier. Pakistan is not yet able to tap the military horsepower sitting dormant on the frontier.
Fundamentals: The National Purchasing Manager Survey came in worse than expected today, further proof of the restocking theory (scroll down to yesterday’s blog). Weekly jobless claims came in worse than expected. Yesterday the ADP private sector jobs report came in worse than expected. Besides restocking, we could also be seeing the effects of stimulus wearing off. Clunkers is over and the first time home buyers tax credit is fading, a double whammy.
Geopolitics: What I was calling the Petraeus Plan yesterday should actually be called the Gates Plan. It appears that McChrystal, Chairmen of the Joint Chiefs Mullen, and Petraeus are 100% behind the McChrystal Plan, so that is the Pentagon Plan. Troops are coming out of Iraq on the behest of the Pentagon, not the Whitehouse, and are slated for the second Afghan surge. Neither the Gates Plan nor the Pentagon Plan has won out yet. Either one could still be implemented.
Let’s assume that the Gates Plan goes forward and ignore the other one. Congress just tripled foreign aid to Pakistan; this is part of the Gates plan; the opening move in an effort to peel the Paki Army off the Indian frontier and pour tens of thousands of fresh troops into the theatre. To make progress here the ISI’s pet terrorist group (LET) has to be offered up to the Indian government, to get India to peel its army off the frontier. An LET leader was just killed in a battle with the Paki Army, so step one seems to be going pretty well. ISI is the Paki CIA, and it is key to this entire dynamic. The CIA is now working hand in glove with the ISI in finding and destroying drone targets in Pakistan. ISI wants its own drone fleet. CIA says no but may let ISI continue partnering when the expansion of drone sorties into Afghanistan occurs.
All of this is in the very early stage and a lot has to go right to make it work. India is not yet pulling troops of the frontier. Pakistan is not yet able to tap the military horsepower sitting dormant on the frontier.
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