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.