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.