Mehsud Terror Factory Dismantled

Charts: The S&P 500 closed at 1091, down .3% and under the key 1100 long term resistance level (bearish). The fourth rally leg is under pressure. Volume patterns in this latest rally are worse than the other three. Uncertainty over the carry trade is probably causing the weak volume. Emerging market economies are starting to slap capital controls on foreign investment, which hurts the carry trade.

Fundamentals: The bad US housing numbers that we saw earlier in the week are roiling the market. The numbers were weak because the $8000 Tax Credit expired, but it has since been reinstated and made even bigger. Fine, except that in April and March the new Tax Credit expires and the Fed’s program to buy mortgage backed securities also expires. American housing looks like it can’t stand on its own two feet and the looming expiration dates are scary because the stock market usually looks 6 months ahead. Growth in China remains strong so we are back to the tricky calculation of whether the strong tiger economies can overcome the weak dinosaur economies.

Geopolitics: The Pak Army is dismantling small Taliban towns in S. Waziristan that have been used as training centers for suicide bombers, this is the main thrust of current operations. The Army intends to shut down the Mehsud tribe’s capability for terror strikes within the rest of Pakistan by taking apart the terrorist infrastructure of the Mehsud tribal lands in S. Waziristan. The Mehsud terror factory is probably the largest in the world. Still, there is a lot of bad guy country in the other tribal lands besides the Mehsud territory. Terror strikes could be launched from other (non-Mehsud) Taliban areas and towns. Any non-Mehsud Taliban that launched a new terror campaign would be next on the Pak Army’s invasion list after the Mehsuds are dealt with. Bear in mind that H. Mehsud was Al-Qaeda’s favorite to take over the Pakistani Taliban alliance, the strongest in the country. That makes him the number one bad guy in the world. What this all boils down to is that the Army is correct to strike directly at H. Mehsud.