Mullah Omar Is The Taliban

Charts: The S&P 500 closed at 1111, up .45%. Oil is moving in a band of $75.50 and $80. It is important that oil continues to meet resistance at $80. The dollar carry trade is still fueling the recovery/rally and it is benign as long as oil and interest rates behave, which is the case with yield on the government’s ten-year note under 3.4%, well below the 4% danger zone. We are seeing a Yen carry trade grow next to a dollar carry trade. Professor Roubini has criticized the dollar carry trade as “mindless.” But the Yen carry trade is powered by hundreds of thousands of wealthy households in Japan, not a handful of hedge funds, so it is more discerning, therefore sustainable and bullish. Plus, the yen carry trade uses less leverage, more cash.

Fundamentals: First time jobless claims fell below 500,000, a key psychological number. Consumer sentiment has unexpectedly turned up and new homes sales came in stronger than expected. This creates a triple dose of good fundamental news.

Geopolitics: On Tuesday President Obama is unveiling his decision on McChrystal’s troop request and policy review. The President is expected to say that there will be 35,000 new US troops and 5,000 new non-US NATO troops for Afghanistan. As far as strategy overhaul, McChrystal is already moving troops out of far-flung outposts and into Kandahar and the Helmand River Valley (HRV: right next to Kandahar). This is the beginning of the counterinsurgency surge and a new strategy that will focus on establishing full government control in the Taliban’s birthplace, Kandahar, which is also the largest southern city. The initial strategy also calls for the Marines to take control of HRV, where opium poppies are grown to fund the Kandahar Taliban. In a way it will be like opening up a third front in the Long War because Afghanistan has been neglected for so long its eruption will seem like a new war. Going forward, southern Afghanistan is going to become the focal point of the Long War. Kandahar is Mullah Omar’s hometown. Mullah Omar is the Taliban.