Yemen War Rages On

Charts: The S&P 500 closed at 1121, up .2%. It is sitting right on top of the 50% retracement level. Holding above that level for several days will be technically significant.

Fundamentals: Yesterday existing home sales were great and today new home sales were horrible. The difference is due entirely to the First Time Home Buyer Tax Credit. The long and short is that housing can’t yet stand on its own two feet and the government will probably keep extending the subsidy. How much debt can the US float? One thing we can be certain of is that healthcare reform will cost at least three times what Congress claims, which amounts to trillions of dollars. A half-dozen or so states are getting special health insurance tax exemptions, as well as waivers for state Medicaid expenses, plus big Federal subsidies for state hospitals. There is no way the other 40 or so states are going to pay higher insurance taxes and higher Medicaid expenses to subsidize the chosen few. The Senate bill gives Nebraska, for example, unique tax privileged insurance companies and a big Medicaid kiss. But Nebraska is a wealthy state with super-low unemployment. Also, there are health insurance tax exemptions for certain unions but not others, which will never stand. All these unique giveaways will be applied to all 50 states, all unions, all state hospitals, etc… The yield on the 10-year note has rocketed up since the breakthrough that supposedly assures passage of this monster. 10-year yield is about 3.7%. 4% is getting into the danger zone.

Geopolitics: Saudi Arabia admits that it has lost about 100 soldiers so far in the Yemen war, indicating that the war is bigger than mainstream media reports have suggested, but not bigger than reports from DMU. The successful air raids against Al-Qaeda last week in southern Yemen were so obviously directed by the CIA that the bad guys are organizing huge anti-American rallies near the cites that were bombed. In northern Yemen the CIA is apparently directing Saudi Air Force strikes and helping the Saudi Army as it advances on key rebel controlled towns. The Army is using massive artillery barrages to soften up the bad guys and civilian casualties are certainly very high. The CIA is benefitting immensely from the lack of media attention.