Carry Trade Gets Clobbered

Charts: The S&P 500 closed at 1100, down .8%. Failure to hold 1100 puts the uptrend under pressure.

Fundamentals: The US national ISM service sector index came in weaker than expected. The only strong component was exports, although employment didn’t look too bad. Once again, this data reinforces the picture of strong growth in tiger economies and anemic growth in dinosaur economies. The ECB made some remarks suggesting that it would like to see a stronger dollar, which hurt the carry trade, which in turn hurt stocks.

Geopolitics: Obama’s homerun is looking more like an out of the park, bases loaded, homerun. Today Defense Secretary Gates swung a club against peaceniks in Congress concerning the new Afghan strategy and surge, beating them like a rented mule. He told them that there was no exit strategy, coalition forces will leave when the Taliban is defeated, troop withdrawal may take 18 months or it might take 18 years. Liberals exploded in white hot rage. Team Obama has its ducks lined up in Congress for funding, however, with super-peacenik Rep. Murtha saying he will grease a supplemental surge spending bill through the House. Team Obama’s cunning co-opting of Murtha deals a body blow to the congressional peace caucus, turning a powerful dove into a screeching hawk. It is now up to Sen. Carl Levin to lead the peace movement. But Levin seemed confused. He didn’t say that he would try to defeat a supplemental surge spending bill. Instead, he (bizarrely) quoted a few parts of the Army counterinsurgency manual to Obama, trying to prove that McChrystal’s plan runs against established doctrine. In other words, the peace movement is rudderless.
The surge will consist of 33,000 US troops and 5,000 non-US NATO troops. The only actual revision to McChrystal’s original plan is that the President demanded that the surge troops be deployed more swiftly than first envisioned.