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.
Tuesday, October 6, 2009
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