Geopolitics Looks Good

Charts: The S&P 500 closed at 1096, up .4%. Support is at 1085 and holding. The broad index needs to drop through 1085, 1079, and 1060 in big volume before serious technical damage occurs. The recent break below 1100 did occur in big volume so caution is advisable.

Fundamentals: Spain joined Greece in suffering a nasty credit rating downgrade today. Japan’s Q3 GDP growth was revised down to 1.3% from 4.8%. Iceland’s Q3 GDP was negative 7.2%; it is still mired in recession. Japan is the second or third largest economy in the world. Iceland is number 101. Iceland has already been bailed out but Greece and Spain have not, nor have they defaulted on sovereign debt yet either but this is the next big problem for the global recovery to overcome. Greece, Ireland, Spain, Hungary, Latvia, and Dubai all have monster debt problems that they may or may not be able to grow out of. There is only so much global credit and America weakens the planet’s creaky credit market when it keeps mindlessly issuing new and massive amounts of treasury debt. Yesterday’s news that Obama wants a second $200 billion stimulus program and the scary march forward of his healthcare bill will make sovereign debt defaults in countries like Latvia more likely. However, these two new American spending nightmares haven’t been enacted yet. There is a chance they will flame out in Congress.

Geopolitics: Al-Qaeda in Iraq executed a big terror attack in Baghdad, killing 130 citizens yesterday. This doesn’t change the overall good geopolitical picture in Iraq. Every four months Al-Qaeda in Iraq mounts a big one day bombing campaign against government facilities and kills about 130 people. The pace of civilian terror deaths in Pakistan is about 7 times worse than it is in Iraq. Both of these Long War hotspots will continue to suffer civilian and military casualties at roughly the current pace for a long time. Other hotspots are seeing predictable and sustainable casualties.