Delta Force = WAM

Charts: The S&P 500 closed at 1128, up .1%. Yield on the 10-year note inched up to about 3.84%. Resistance for the 10-year note yield is 3.95. The danger zone is 4%.

Fundamentals: Industrial data out of Japan came in stronger than expected due to exports to China. China revised its GDP upward. American holiday retail sales are coming in slightly better than expected and margins are sturdy. That’s the good news. Here’s the bad: This week the US Treasury is auctioning off an eye-popping $118 billion in debt. Today’s auction was very sloppy. Yields popped up again. China and Japan did not buy as much as expected. The announcement Christmas Eve that Treasury will pour an unlimited amount of money into Fannie and Freddie is hurting US debt sales. Words like “unlimited” and “US debt” don’t mix well.

Geopolitics: The NY Times reports that US Special Forces have been drawn down in Iraq and funneled into Afghanistan. At the same time conventional US forces have been removed from remote rural Afghani outposts, which made the Taliban act predictably, seizing the outposts. But then Special Forces hit the bad guys hard in remote areas and in Helmand Province. If this action has been big enough to leak out to the NY Times, then the bad guys must be taking it on the chin. CIA drone strikes and continued Pak Army actions have also hurt the bad guys just across the border. When the heat gets turned up on bad guys in Af/Pak, it triggers the whack-a-mole (WAM) effect. We are probably seeing the biggest WAM yet as bad guys pour into Yemen from Af/Pak. The Fort Hood Massacre had links to Al Qaeda in the Arabian Peninsula (AQAP), which is the Yemen Al-Qaeda franchisee. And the thwarted airline terror attempt on Christmas was also an AQAP plot. AQAP is now the biggest Al-Qaeda entity outside of Pakistan and growing rapidly. Sporadic media reports are filtering out of Yemen of US Special Forces engaging bad guys. Reports of CIA activity in Yemen have become a veritable deluge. This is all good news.
The Iranian government is in big trouble. Over the weekend student protestors took to the streets, high-jacking a national religious ceremony and turning it into an insurrection. The Revolutionary Guard and riot police came down hard on the protestors, killing about 8 and hospitalizing hundreds. But the hospitals were also filled with battered cops. At least one police station was totally overrun and torched. The protestors are fighting back harder and more effectively than ever before. Because it would be enormously disruptive for the Iranian government to fall, Team Obama at first did not help the protestors. Now, however, the US is helping them by enabling internet access and perhaps in other ways.
Last week we saw 11 Iranian soldiers “invade” Iraq and plant a flag on an oil well. This is an example of how desperate the Iranian regime has become. It was trying to scare its people into believing another war with Iraq was looming and they sure as heck better stop trying to overthrow the government because the last war killed over a million Iranians. The market wants the Iranian government to die slowly and without very many death spasms. So far so good.