Obama Hits Homerun

Charts: The S&P 500 closed at 1109, flat on the day. Resistance is at 1110. After that 1120 should provide heavy resistance because it represents a 50% retracement of the bear market’s losses.

Fundamentals: October industrial production rose 2.2% in Brazil (very good). Australia’s economy is so strong it has raised interest rates for the third time. Australia is not an emerging market, but it is an Asian tiger economy. Meanwhile, Japan’s central bank is doing the opposite of Australia’s, loosening monetary policy to prevent a slip back into recession. The specter of deflation has returned to haunt Japan. The pattern of strong tiger economies and weak dinosaur economies is becoming entrenched. I have been buying SLX (the global steel index) because of this dynamic.

Geopolitics: Obama hit a homerun with his Afghanistan speech, managing to piss off hawks and doves alike, but mostly doves. He made the point that Al-Qaeda and the Taliban are inextricably linked and promised to crush them both. He hinted broadly that after the war in Afghanistan was sewn up Yemen and Somalia would be next. This is heartening because it shows that he grasps the nature of the Long War. At one point he was describing the new strategy and was practically quoting the US Army counterinsurgency manual, very bullish. He also quoted the Gettysburg address, which got a big cheer from the West Point cadets. Hawks were angry that he is insisting on an exit strategy; US surge troops will begin to be withdrawn in 18 months. But the exit strategy is very vague, light on specifics. General McChrystal says that he is satisfied with the decision and this is the final word on the new policy. Doves are upset about the surge and are promising a war tax. This will never fly but it will increase gridlock, which the market loves. Getting the troop request nailed while healthcare is still being debated is great for gridlock. If healthcare fails because of the troop surge, liberals will be incandescent with rage. When President Clinton’s healthcare package failed his liberal base abandoned him, allowing a jog to the right, setting up a huge bull run.