Charts: The big picture for equity charts is not good right now.
Fundamentals: In September 2008 Lehman Brothers collapsed. Cargo container traffic in the world’s busiest ports (such as Los Angeles and Singapore) immediately plunged faster and harder than at any time in history. Total number of containers is a proxy for world trade flows. Individual countries essentially stopped trading with each other and worked off internal inventories. In February 2009 global container traffic bottomed out and reversed sharply upward because the global financial system was obviously not going to simply vanish, which was the initial fear. Countries started trading with each other again and stopped draining existing inventories. Factories began once again to produce goods.
In September 2009 total container units hit a post Lehman peak and has been reversing downward ever since as global inventory rebuilding tapers off. Although the Port of Los Angeles reports containers are now full, blurring the data. America’s Q4 GDP numbers showed the greatest ever boost due to changes in inventories, an echo of the cataclysmic shock waves that followed Lehman’s collapse. Going forward we will see much smaller American GDP boosts because of inventory rebuilding. The early V-shape of the recovery seems mostly to be a snap back from the collapse of Lehman Brothers. Unless China really cranks it up, the recovery is going to get rocky.
Geopolitics: European reporters at NATO bases in Afghanistan are amazed to see Marines smiling and lustily singing marching songs as they mass for a huge offensive against Helmand province in a few weeks. The Marines are hungering for combat. Morale is very high. They have a new mission, a new leader, new troops, and new gear.
The Euro-porters ask: What kind of people are these Americans? Why are they so militaristic? And is the nightmare likely to continue? A look at recent events certainly paints a warlike picture of the USA. The US Navy is surrounding Iran with a fleet of Aegis anti-missile destroyers. The Pentagon is putting Patriot anti-missile batteries in the Arab Gulf states. Total encirclement. The Pentagon is preparing to fight a missile battle with Iran.
The CIA continues its Drone Blitz against N. Waziristan, killing 15 bad guys Friday with a drone wolf pack. President Obama publically tells us that he can’t completely rule out invading Somalia. In fact if reelected he will do just that in his second term.
Will America’s warlike behavior last? We know Al-Qaeda is in it for the long haul, is America? Before answering this question it is useful to study the history of soccer as it became the world’s most popular sport in the 19th century. Unlike every other country, America didn’t like the soft and gentle rules for soccer or as it is called everywhere else “football.” So the Americans borrowed rules from rugby and (amazingly) land warfare to create American football, which is the true national sport. That it is a stylized version of land warfare tells us Americans have been a warlike people for a long time. Military experts agree that the Union Army after the Civil War could have fairly easily conquered Europe and colonized the world. The only reason it didn’t was the empty continent at the US Army’s feet. Today it has more firepower than every other nation combined including every other nation that has ever existed.
Yes, America will keep fighting the Long War until it wins. DMU calculations project this will take 270 years, with a margin of error 100 years either way. These numbers are based on parallels between the early years of the Cold War and the early decades of the Long War as well as comparisons with other religious wars.
Sunday, January 31, 2010
Friday, January 29, 2010
Hot Steel And High Explosives
Charts: The S&P 500 closed at 1074, down 1%. The index is now trading well below the 100-day moving average. Today it punched through another support level of 1076. Next support is 1072. Leadership is horrible. All technical indicators are negative. The Shanghai index has broken below its 200-day moving average, a technical indicator that a bear market could be forming in Asia. The bear’s growl is now officially a roar.
Fundamentals: Preliminary American Q4 GDP came in at a stout 5.7% growth, way above expectations. Stripping out inventory adjustments gives a more honest figure called Real Final Sales: up 2.2%; solid growth, not spectacular, half what it should be at this point in the business cycle. The Chicago PMI manufacturing index came in strong today. 78% of S&P 500 companies are beating estimates so far in this earnings season; again quite solid but not spectacular.
Despite this good data the market has one big worry: Greek sovereign debt default. Dispirited from having their bonuses ripped away, Goldman Sachs brokers couldn’t talk China into buying Greek bonds. The Economist reports that this failure galvanized Germany and France into crafting a secret plan to bailout Greece. The market will no longer respond to rumors. It needs to see real progress on Greek debt. This is the nightmare scenario: Greece defaults because bond vigilantes continue driving up debt yields. This would cause yields to soar for Spanish, Portuguese, Italian, and Irish debt. If any one of them were to default, the credit markets would go berserk and our previous bear market would look like a Sunday picnic.
Geopolitics: The Saudi Army proudly invited reporters for the first time to tour the border between Yemen and Saudi Arabia. What had been a battle zone is now closer to a highly militarized frontier, a mini-version of the border between North and South Korea, although not quite that calm. Mortar rounds landed and exploded a couple miles from the reporters’ Land Rovers and Houthi snipers were still firing at Saudi soldiers. Every hilltop along the border is a Saudi Army outpost. Newly built roads link these bases and there is constant patrolling by the now battle hardened Saudi Army. Although the Kingdom denies it, the Saudi Air Force is still active in the skies over Yemen. Hopefully Yemen and Saudi can now turn all their firepower on AQAP.
Reporters are also converging on the largest NATO bases in Afghanistan as Gen. McChrystal gets ready to launch his first big offensive in about 3 weeks. The bases are beehives of activity. Hercules heavy transport airplanes roar in and out of airfields, unloading supplies and troops at a fevered pitch. Chinook troop helicopters fill the air with clouds of swirling dust as they move men and material to forward bases. The ground is alive with NATO troop movements. A powerful storm is gathering and it will soon descend on the Taliban with a rain of hot steel and high explosives.
Malaysian security forces have captured a dozen or so bad guys. The Singapore Straits Times says several of these bad guys have links to AQAP, demonstrating the importance of crushing AQAP in Yemen but also the importance of having a robust CIA presence in countries like Malaysia.
Fundamentals: Preliminary American Q4 GDP came in at a stout 5.7% growth, way above expectations. Stripping out inventory adjustments gives a more honest figure called Real Final Sales: up 2.2%; solid growth, not spectacular, half what it should be at this point in the business cycle. The Chicago PMI manufacturing index came in strong today. 78% of S&P 500 companies are beating estimates so far in this earnings season; again quite solid but not spectacular.
Despite this good data the market has one big worry: Greek sovereign debt default. Dispirited from having their bonuses ripped away, Goldman Sachs brokers couldn’t talk China into buying Greek bonds. The Economist reports that this failure galvanized Germany and France into crafting a secret plan to bailout Greece. The market will no longer respond to rumors. It needs to see real progress on Greek debt. This is the nightmare scenario: Greece defaults because bond vigilantes continue driving up debt yields. This would cause yields to soar for Spanish, Portuguese, Italian, and Irish debt. If any one of them were to default, the credit markets would go berserk and our previous bear market would look like a Sunday picnic.
Geopolitics: The Saudi Army proudly invited reporters for the first time to tour the border between Yemen and Saudi Arabia. What had been a battle zone is now closer to a highly militarized frontier, a mini-version of the border between North and South Korea, although not quite that calm. Mortar rounds landed and exploded a couple miles from the reporters’ Land Rovers and Houthi snipers were still firing at Saudi soldiers. Every hilltop along the border is a Saudi Army outpost. Newly built roads link these bases and there is constant patrolling by the now battle hardened Saudi Army. Although the Kingdom denies it, the Saudi Air Force is still active in the skies over Yemen. Hopefully Yemen and Saudi can now turn all their firepower on AQAP.
Reporters are also converging on the largest NATO bases in Afghanistan as Gen. McChrystal gets ready to launch his first big offensive in about 3 weeks. The bases are beehives of activity. Hercules heavy transport airplanes roar in and out of airfields, unloading supplies and troops at a fevered pitch. Chinook troop helicopters fill the air with clouds of swirling dust as they move men and material to forward bases. The ground is alive with NATO troop movements. A powerful storm is gathering and it will soon descend on the Taliban with a rain of hot steel and high explosives.
Malaysian security forces have captured a dozen or so bad guys. The Singapore Straits Times says several of these bad guys have links to AQAP, demonstrating the importance of crushing AQAP in Yemen but also the importance of having a robust CIA presence in countries like Malaysia.
Thursday, January 28, 2010
Congress Helps Al-Qaeda
Charts: The S&P 500 closed at 1085. Down 1.2%. The index is sitting just under the 100-day support line. Trading below that line for several days would cause long term technical damage. Since the index is currently trading below the 50-day line short term damage is ongoing. Wall Street is once again hearing a bear’s growl. It is not yet roaring but the growling is much louder. Scary.
Fundamentals: Treasury Sec. Geithner is being grilled over the AIG bailout. Both Republicans and Demos were in full attack mode, a sign that Capitol Hill is serious about gutting America’s financial system and preventing a future Treasury Sec. from doing something like an AIG bailout. A theoretical failure to bailout AIG would have had the same effect on the global economy as the actual failure to bailout Lehman Brothers did, except it would have been a hundred times worse. After Lehman collapsed worldwide economic activity came to a virtual standstill. Shipments of wheat from North Dakota to Europe could not get trade financing. The short, sharp fall in world trade was steeper than anything seen during the Great Depression. It is an understatement of massive proportion to say bailing out AIG was a good idea. What about moral hazard? Failing to bailout Lehman Brothers provided plenty of moral hazard. In other words Paulson, Bernanke, and Geithner have handled the crisis nearly perfectly so far.
Geopolitics: With the blessing of Gen. McChrystal, Afghan President Karzai is set to unveil a plan to entice Taliban fighters and mid-level operatives away from the bad guys by offering jobs. Obviously for this to work Afghanistan’s economy will have to grow at a rapid clip. Polling experts say that 70% of captured Taliban fighters do not fight for theological or ideological reasons, but for meager pay and food. This is the Taliban’s response to Karzai and McChrystal’s plan: “They think the Mujahedeen will be enticed by money… such thoughts are baseless and futile and have no truth.” If the world economy goes into a double-dip recession, then the Taliban is correct, there won’t be any way to entice the bad guys away from their evil employers with a better offer. Therefore, Capitol Hill’s attempt to gut the US financial system is a huge gift to Al-Qaeda and its faithful servant, the Taliban.
Fundamentals: Treasury Sec. Geithner is being grilled over the AIG bailout. Both Republicans and Demos were in full attack mode, a sign that Capitol Hill is serious about gutting America’s financial system and preventing a future Treasury Sec. from doing something like an AIG bailout. A theoretical failure to bailout AIG would have had the same effect on the global economy as the actual failure to bailout Lehman Brothers did, except it would have been a hundred times worse. After Lehman collapsed worldwide economic activity came to a virtual standstill. Shipments of wheat from North Dakota to Europe could not get trade financing. The short, sharp fall in world trade was steeper than anything seen during the Great Depression. It is an understatement of massive proportion to say bailing out AIG was a good idea. What about moral hazard? Failing to bailout Lehman Brothers provided plenty of moral hazard. In other words Paulson, Bernanke, and Geithner have handled the crisis nearly perfectly so far.
Geopolitics: With the blessing of Gen. McChrystal, Afghan President Karzai is set to unveil a plan to entice Taliban fighters and mid-level operatives away from the bad guys by offering jobs. Obviously for this to work Afghanistan’s economy will have to grow at a rapid clip. Polling experts say that 70% of captured Taliban fighters do not fight for theological or ideological reasons, but for meager pay and food. This is the Taliban’s response to Karzai and McChrystal’s plan: “They think the Mujahedeen will be enticed by money… such thoughts are baseless and futile and have no truth.” If the world economy goes into a double-dip recession, then the Taliban is correct, there won’t be any way to entice the bad guys away from their evil employers with a better offer. Therefore, Capitol Hill’s attempt to gut the US financial system is a huge gift to Al-Qaeda and its faithful servant, the Taliban.
Wednesday, January 27, 2010
Houthi Cry Uncle
Charts: The S&P 500 closed at 1098, up .5%. The index found support at its 100-day moving average.
Fundamentals: Greek bond spreads widened to another all-time record, reversing the improvement seen earlier in the week. A Greek debt default would be catastrophic. Goldman Sachs is trying to broker Greek debt to China. If it makes a deal this particular threat would go away. More US housing data came in worse than expected.
Geopolitics: In Kashmir, Indian and Pak troops engaged in a skirmish across the line of control, trading heavy weapons fire. Al Qaeda has cleverly engineered a spike in terror strikes across Kashmir which has the two rival nations at each other throats. Obviously this decreases Pak Army pressure against the bad guys, although the trick will only work for so long.
In Yemen, the Saudi Army says it has defeated the Houthi rebels and accepted the surrender terms of their leader, Abdul Houthi. Very good news. While the Yemen Army does not have a truce yet with the Houthi it probably will in time. AQAP is now under much more pressure. Clobbering AQAP over the next several months should help funnel the flow of whack-a-mole bad guys into Somalia after the Pak Army eventually invades N. Waziristan. It is better to keep the whack-a-mole effect away from the oil fields of the Saudi peninsula.
Fundamentals: Greek bond spreads widened to another all-time record, reversing the improvement seen earlier in the week. A Greek debt default would be catastrophic. Goldman Sachs is trying to broker Greek debt to China. If it makes a deal this particular threat would go away. More US housing data came in worse than expected.
Geopolitics: In Kashmir, Indian and Pak troops engaged in a skirmish across the line of control, trading heavy weapons fire. Al Qaeda has cleverly engineered a spike in terror strikes across Kashmir which has the two rival nations at each other throats. Obviously this decreases Pak Army pressure against the bad guys, although the trick will only work for so long.
In Yemen, the Saudi Army says it has defeated the Houthi rebels and accepted the surrender terms of their leader, Abdul Houthi. Very good news. While the Yemen Army does not have a truce yet with the Houthi it probably will in time. AQAP is now under much more pressure. Clobbering AQAP over the next several months should help funnel the flow of whack-a-mole bad guys into Somalia after the Pak Army eventually invades N. Waziristan. It is better to keep the whack-a-mole effect away from the oil fields of the Saudi peninsula.
Tuesday, January 26, 2010
White House Causes Correction
Charts: The S&P 500 closed at 1092, down .4%. The market is in a correction.
Fundamentals: After Obama-Care flared out the President tacked hard to the left with his proposed tax on bank assets. It is now apparent that the tax would destroy the $3.8 trillion treasury repurchase market, which provides liquidity to money market mutual funds, short term commercial paper, and other short term credit markets. Also, it would prevent the Fed from controlling the overnight target rate, upending the entire economy. The tax is so poorly designed it will singlehandedly plunge the world back into the Great Recession if enacted. Today’s decline was led by large cap financials.
China made yet another move to tighten monetary policy Tuesday. China is very aware that the sequence leading to Japan’s two decade decline started with a real estate bubble popping. China will not let its real estate market turn into a bubble no matter what.
Geopolitics: In his most recent audio tape Osama bin Laden attacked Israel. Whenever Al-Qaeda attacks Israel it is a sign of desperation. Al-Qaeda’s core belief is that Israel is much less of an impediment to recreating the Great Caliphate than the Saudi royal family and American troops in Muslim countries. Al-Qaeda doesn’t really care about Israel but the rest of the Muslim world does. Team Obama is tentatively starting a new push for Israeli-Palestinian peace talks. The Team needs to get over Obama-Care, stop bashing banks, roll up its sleeves, and focus on these talks because a breakthrough will hurt the bad guys.
Fundamentals: After Obama-Care flared out the President tacked hard to the left with his proposed tax on bank assets. It is now apparent that the tax would destroy the $3.8 trillion treasury repurchase market, which provides liquidity to money market mutual funds, short term commercial paper, and other short term credit markets. Also, it would prevent the Fed from controlling the overnight target rate, upending the entire economy. The tax is so poorly designed it will singlehandedly plunge the world back into the Great Recession if enacted. Today’s decline was led by large cap financials.
China made yet another move to tighten monetary policy Tuesday. China is very aware that the sequence leading to Japan’s two decade decline started with a real estate bubble popping. China will not let its real estate market turn into a bubble no matter what.
Geopolitics: In his most recent audio tape Osama bin Laden attacked Israel. Whenever Al-Qaeda attacks Israel it is a sign of desperation. Al-Qaeda’s core belief is that Israel is much less of an impediment to recreating the Great Caliphate than the Saudi royal family and American troops in Muslim countries. Al-Qaeda doesn’t really care about Israel but the rest of the Muslim world does. Team Obama is tentatively starting a new push for Israeli-Palestinian peace talks. The Team needs to get over Obama-Care, stop bashing banks, roll up its sleeves, and focus on these talks because a breakthrough will hurt the bad guys.
Monday, January 25, 2010
Gates Wants ISI Drone Fleet
Charts: The S&P 500 closed at 1097, up .5%. The market is in a correction. One of the most interesting charts to come out of the bull market is the very tight inverse correlation between President Obama’s approval rating and the rally in the broad index. Obama has suffered a gigantic popularity plunge. Every tick down in his popularity translates to a tick up in the stock market. The market hates and fears Obama’s domestic agenda but believes the agenda will fail as the public rejects it.
Fundamentals: Greece was able to sell a huge chunk of debt today, calming fears that it will default, for now at least. Over the weekend Obama claimed there is enough support to guarantee Bernanke’s nomination, removing a huge threat. There was some very weak housing data Monday, highlighting the fact that now is not the time to crush the financial sector with bizarre populist schemes like the Volker Rule or Obama’s bank tax.
Geopolitics: Defense Secretary Gates has laid the groundwork for a deal with the Pak Army and ISI. The US will give the Pak spy agency (ISI) its own independent drone fleet and stop CIA drone strikes. In return the Pak Army will launch a huge offensive against N. Waziristan in about 6 months. This will force Al Qaeda to move to Somalia or Yemen. If that happens, the Pak Army would not have to attack Baluchistan (headquarters for Afghan Taliban). In fact if Al Qaeda left Pakistan it would transform the Taliban (sort of like Hitler leaving the Nazi party) and make a negotiated settlement possible. General McChrystal says he’s ready to negotiate with Mullah Omar if everything shakes out just right.
The streets of N. Waziristan are beginning to fill with dead bodies as the bad guys make good on their promise to purge their ranks of CIA double agents and local informants. Pinned to the bodies are notes that say things like, “This is what happens to those who spy for the Americans.”
In Afghanistan, 5 US soldiers have been killed in the past 24 hours. There is no bad guy body count from the Pentagon. The good news is that the US media is not reporting every combat death like it did in the Iraq war and the public is no longer focused on the Long War.
In Yemen, after getting pounded by the Saudi Army and Air Force for 3 months, the leader of the Houthi rebels, Abdul Houthi, has offered a truce with Saudi Arabia. The Yemen government says it wants to turn all its firepower against AQAP and end the war with the Houthi. As noted above, there will be a huge whack-a-mole effect when N. Waziristan is invaded so it is important to prevent the bad guys from pouring into Yemen, better they go to Somalia.
Specific Stocks: Let’s talk value. Windstream (WIN) is a rural land line telecom that trades at a lower multiple than its peers and they all trade at very low multiples because investors think the land line industry is like the buggy whip industry because of cell phones. But land lines deliver high speed internet and other services and aren’t going away. WIN has a low multiple because it has been buying up its competition. It pays a mouthwatering 9% dividend. Carlos Slim is buying up landline businesses in Mexico because he sees value. Carlos Slim is no dummy.
Intel (INTC) has a forward multiple of 12.4 vs. an industry average of 15. It pays a stout 2.8% dividend. INTC trades for a lower multiple because investors are afraid of anti-trust legislation. But if all this populist nonsense is slapped down INTC probably won’t get hurt.
Fundamentals: Greece was able to sell a huge chunk of debt today, calming fears that it will default, for now at least. Over the weekend Obama claimed there is enough support to guarantee Bernanke’s nomination, removing a huge threat. There was some very weak housing data Monday, highlighting the fact that now is not the time to crush the financial sector with bizarre populist schemes like the Volker Rule or Obama’s bank tax.
Geopolitics: Defense Secretary Gates has laid the groundwork for a deal with the Pak Army and ISI. The US will give the Pak spy agency (ISI) its own independent drone fleet and stop CIA drone strikes. In return the Pak Army will launch a huge offensive against N. Waziristan in about 6 months. This will force Al Qaeda to move to Somalia or Yemen. If that happens, the Pak Army would not have to attack Baluchistan (headquarters for Afghan Taliban). In fact if Al Qaeda left Pakistan it would transform the Taliban (sort of like Hitler leaving the Nazi party) and make a negotiated settlement possible. General McChrystal says he’s ready to negotiate with Mullah Omar if everything shakes out just right.
The streets of N. Waziristan are beginning to fill with dead bodies as the bad guys make good on their promise to purge their ranks of CIA double agents and local informants. Pinned to the bodies are notes that say things like, “This is what happens to those who spy for the Americans.”
In Afghanistan, 5 US soldiers have been killed in the past 24 hours. There is no bad guy body count from the Pentagon. The good news is that the US media is not reporting every combat death like it did in the Iraq war and the public is no longer focused on the Long War.
In Yemen, after getting pounded by the Saudi Army and Air Force for 3 months, the leader of the Houthi rebels, Abdul Houthi, has offered a truce with Saudi Arabia. The Yemen government says it wants to turn all its firepower against AQAP and end the war with the Houthi. As noted above, there will be a huge whack-a-mole effect when N. Waziristan is invaded so it is important to prevent the bad guys from pouring into Yemen, better they go to Somalia.
Specific Stocks: Let’s talk value. Windstream (WIN) is a rural land line telecom that trades at a lower multiple than its peers and they all trade at very low multiples because investors think the land line industry is like the buggy whip industry because of cell phones. But land lines deliver high speed internet and other services and aren’t going away. WIN has a low multiple because it has been buying up its competition. It pays a mouthwatering 9% dividend. Carlos Slim is buying up landline businesses in Mexico because he sees value. Carlos Slim is no dummy.
Intel (INTC) has a forward multiple of 12.4 vs. an industry average of 15. It pays a stout 2.8% dividend. INTC trades for a lower multiple because investors are afraid of anti-trust legislation. But if all this populist nonsense is slapped down INTC probably won’t get hurt.
Friday, January 22, 2010
A Bear Growls
Charts: The S&P 500 closed at 1093, down a sickening 2%. The major indexes have all smashed through 50-day moving averages in big volume. All technical indicators have turned negative. The VIX is once again measuring fear as it rockets up; not good news, its pace signals panic. Wall Street can hear a bear’s growl. We’ll know soon enough if it turns into a full-throated roar.
Fundamentals: One of the reasons why General Motors was bailed out is its size. To prevent it from being bailed out in the future the government could force it to lose money and shrink, perhaps by making it illegal to produce cars in popular paint colors like silver. Team Obama is doing something like that to large US banks. The so called Volker Rule takes away banks’ proprietary trading desks, where they make “obscene profits.” Team Obama is reading opinion polls that say reducing bank profits is a political winner and will mitigate the damage caused by the flame out of Obama-Care. Democrats in general are attacking Wall Street, an attempt to regroup after the Obama-Care failure. Sen. Boxer says she will work against Fed Chairman Bernanke getting reappointed: “It is time for Main Street to have a champion at the Fed.” If Bernanke is not reappointed the market will keep tanking. If the Volker Rule is passed the market will keep tanking.
Geopolitics: Al Qaeda is taking over various Talibans and jihadist militias in Pakistan and elsewhere. It is taking over LET, the terror group created by the ISI to go after India. Defense Secretary Gates says that Al Qaeda is stirring animosity between India and Pakistan with terror strikes on both sides of the line of control (military border) in Kashmir. Indian and Pak troops are now sporadically trading fire across the line of control although peace talks are ongoing between the two nations. Because of this the Pak Army has told Gates it cannot attack N. Waziristan or Baluchistan for at least 6 months. N. Waziristan is Al Qaeda headquarters and Baluchistan is another Pak tribal land that is headquarters to Mullah Omar and his Afghan Taliban. In any case, the Pak Army is still bogged down fighting in the Swat Valley and S. Waziristan where 9 bad guys and 1 good guy were killed Friday.
Fundamentals: One of the reasons why General Motors was bailed out is its size. To prevent it from being bailed out in the future the government could force it to lose money and shrink, perhaps by making it illegal to produce cars in popular paint colors like silver. Team Obama is doing something like that to large US banks. The so called Volker Rule takes away banks’ proprietary trading desks, where they make “obscene profits.” Team Obama is reading opinion polls that say reducing bank profits is a political winner and will mitigate the damage caused by the flame out of Obama-Care. Democrats in general are attacking Wall Street, an attempt to regroup after the Obama-Care failure. Sen. Boxer says she will work against Fed Chairman Bernanke getting reappointed: “It is time for Main Street to have a champion at the Fed.” If Bernanke is not reappointed the market will keep tanking. If the Volker Rule is passed the market will keep tanking.
Geopolitics: Al Qaeda is taking over various Talibans and jihadist militias in Pakistan and elsewhere. It is taking over LET, the terror group created by the ISI to go after India. Defense Secretary Gates says that Al Qaeda is stirring animosity between India and Pakistan with terror strikes on both sides of the line of control (military border) in Kashmir. Indian and Pak troops are now sporadically trading fire across the line of control although peace talks are ongoing between the two nations. Because of this the Pak Army has told Gates it cannot attack N. Waziristan or Baluchistan for at least 6 months. N. Waziristan is Al Qaeda headquarters and Baluchistan is another Pak tribal land that is headquarters to Mullah Omar and his Afghan Taliban. In any case, the Pak Army is still bogged down fighting in the Swat Valley and S. Waziristan where 9 bad guys and 1 good guy were killed Friday.
Thursday, January 21, 2010
Fibonacci # Is No Joke
Charts: The S&P 500 closed at 1116, down 1.9%. 1120 is a Fibonacci support level. Just because the word “Fibonacci” is funny sounding does not lessen the grave technical damage that violating this level will create. It will be no joking matter if a technical correction occurs. No multi-year bull market has ever failed to register at least one correction of over 10%. The current bull has not yet had a 10% correction.
Fundamentals: China reported stronger GDP growth than expected, bad news because it will accelerate China’s tightening cycle. America’s weekly jobless claims came in weaker than expected as did the Fed’s Philly manufacturing index. President Obama announced still another moronic scheme to punish banks. This one is designed to shrink banks that are “too big to fail” by curbing their trading activity. The financial crisis was not caused by banks being too large. The savings and loan crisis of the late 80s was very similar to today’s credit crunch. Back then hundreds of very small financial institutions went bust en masse rather than a few big ones. China’s banks are now much larger than America’s but are much sounder. It is impossible to overstate how damaging it is for Obama to attack banks right now.
Greek government bond spreads are now widening (getting worse) on Chinese tightening news. If Greece defaults on its debt it will cause a domino effect among other highly indebted small countries such as Portugal. If this were to happen, world stock markets would get clobbered.
Geopolitics: The Long War started in 1989 and America ended its strategic debate on how to win the war in 2009, settling on a long term strategy called counterinsurgency. The Cold War started in 1945 and America ended its strategic debate on how to win that war in 1948, settling on a long term strategy called containment. If the Long War continues to evolve at about 1/6 the pace of the Cold War it will last 270 years. Politicians keep telling the American public that the LW will end with whichever mini-war is being fought at any one moment in time. George Bush said that it will be over with the Iraq war. Obama is saying it will be over with the Afghan war. Some future president will say the LW is over after the Somali war has ended. After that Indonesia. Eventually the term whack-a-mole will enter the public lexicon and voters will understand how long the LW is going to be.
Fundamentals: China reported stronger GDP growth than expected, bad news because it will accelerate China’s tightening cycle. America’s weekly jobless claims came in weaker than expected as did the Fed’s Philly manufacturing index. President Obama announced still another moronic scheme to punish banks. This one is designed to shrink banks that are “too big to fail” by curbing their trading activity. The financial crisis was not caused by banks being too large. The savings and loan crisis of the late 80s was very similar to today’s credit crunch. Back then hundreds of very small financial institutions went bust en masse rather than a few big ones. China’s banks are now much larger than America’s but are much sounder. It is impossible to overstate how damaging it is for Obama to attack banks right now.
Greek government bond spreads are now widening (getting worse) on Chinese tightening news. If Greece defaults on its debt it will cause a domino effect among other highly indebted small countries such as Portugal. If this were to happen, world stock markets would get clobbered.
Geopolitics: The Long War started in 1989 and America ended its strategic debate on how to win the war in 2009, settling on a long term strategy called counterinsurgency. The Cold War started in 1945 and America ended its strategic debate on how to win that war in 1948, settling on a long term strategy called containment. If the Long War continues to evolve at about 1/6 the pace of the Cold War it will last 270 years. Politicians keep telling the American public that the LW will end with whichever mini-war is being fought at any one moment in time. George Bush said that it will be over with the Iraq war. Obama is saying it will be over with the Afghan war. Some future president will say the LW is over after the Somali war has ended. After that Indonesia. Eventually the term whack-a-mole will enter the public lexicon and voters will understand how long the LW is going to be.
Wednesday, January 20, 2010
Haqqani Draw Blood
Charts: The S&P 500 closed at 1138, down 1%. Support held at 1132. This level has been tested six times, making it a battleground and therefore more important. A break below 1132 and then 1120 would cause significant technical damage.
Fundamentals: The Chinese government announced its fifth recent tightening measure. Real Estate prices are surging in coastal China and Hong Kong, entering bubble territory. China has no choice but to scale back its stimulus. The global recovery has been led by China up till now, but going forward America has to provide leadership. The special election in Massachusetts has probably killed Obama-Care. This means that American policies will not derail the global recovery. Unfortunately that is a far cry from America actually leading the global recovery.
Geopolitics: On Monday the Haqqani network killed 12 people in central Kabul, disrupting a swearing in ceremony of government officials and striking a blow at the heart of the Afghan government. The bad guys got through a dozen checkpoints before attacking. Once the fighting began Afghan security forces did a great job killing all the bad guys and minimizing civilian casualties. NATO runs the security for most large Afghan cities. But Kabul security is run by the Afghan Army. This terror strike shows the weaknesses and strengths of the Afghan Army. It did a bad job manning the checkpoints because that is boring work. It did very well once the exciting gun battle started because the Afghan Army is filled with courageous warriors. These warriors need to become soldiers.
The Haqqani network has become the most powerful Taliban in the world. It was created by the CIA in the 80s to fight the Soviets. Its fearsome competence derives from its origins.
The Drone Blitz continues to chew up bad guys. A drone wolf pack that had been circling a certain town in N. Waziristan for three days obliterated a car fleeing the town, killing 6 Taliban leaders, probably members of the Haqqani network or the closely aligned Pakistani Taliban. Al Qaeda is taking over both organizations.
Fundamentals: The Chinese government announced its fifth recent tightening measure. Real Estate prices are surging in coastal China and Hong Kong, entering bubble territory. China has no choice but to scale back its stimulus. The global recovery has been led by China up till now, but going forward America has to provide leadership. The special election in Massachusetts has probably killed Obama-Care. This means that American policies will not derail the global recovery. Unfortunately that is a far cry from America actually leading the global recovery.
Geopolitics: On Monday the Haqqani network killed 12 people in central Kabul, disrupting a swearing in ceremony of government officials and striking a blow at the heart of the Afghan government. The bad guys got through a dozen checkpoints before attacking. Once the fighting began Afghan security forces did a great job killing all the bad guys and minimizing civilian casualties. NATO runs the security for most large Afghan cities. But Kabul security is run by the Afghan Army. This terror strike shows the weaknesses and strengths of the Afghan Army. It did a bad job manning the checkpoints because that is boring work. It did very well once the exciting gun battle started because the Afghan Army is filled with courageous warriors. These warriors need to become soldiers.
The Haqqani network has become the most powerful Taliban in the world. It was created by the CIA in the 80s to fight the Soviets. Its fearsome competence derives from its origins.
The Drone Blitz continues to chew up bad guys. A drone wolf pack that had been circling a certain town in N. Waziristan for three days obliterated a car fleeing the town, killing 6 Taliban leaders, probably members of the Haqqani network or the closely aligned Pakistani Taliban. Al Qaeda is taking over both organizations.
Monday, January 18, 2010
Drone Blitz
Charts: The VIX is called Wall Street’s fear gauge. It falls as a bull market develops and fear subsides, a positive technical indicator at first. As the VIX keeps falling at some point it stops measuring a drop in fear and starts measuring a rise in complacency. In the darkest days of the bear market the VIX registered an all-time record high of 81. It has since dropped like a stone in the sharpest plunge ever to Friday’s close of 18. Investors are now mildly complacent. A VIX of 12 equates to investors being stupidly complacent. The VIX only looks 6 months into the future. Global government stimulus measures start to expire in 6 months and the VIX is saying investors expect no significant bad news until then, such as Greece defaulting on its sovereign debt. On Friday the credit default swap spread (CDSS) for Greek debt reached a record high. Other Euro-zone periphery countries saw CDSS reach new highs, implying a greater chance of default. Graphic chart patterns are bullish. Other technical indicators like the VIX and various CDSS are bearish.
Fundamentals: Since 1989 Japanese stocks have dropped over 70% and Japanese annual GDP growth has averaged only 1.2%. The ongoing Japanese crisis started with a real estate bubble pop, followed by a long-lasting financial meltdown, and ineffective government stimulus programs that have left Japan with a 200% debt to GDP ratio, over twice as high as America’s.
Starting in 2007, America experienced a real estate bubble pop, a financial meltdown, and ineffective fiscal stimulus that led to ballooning debt and a weak recovery. All of this is similar to the Japanese crisis except Japan never generated a super-steep yield curve to turbo-charge its banks, sleepily doled out its bank bailout cash over a decade and doled out its ineffective stimulus over an even longer time period. America’s super-steep yield curve, more aggressive bank bailout, and the one-time nature of its ineffective stimulus are the major differences between the American crisis and the Japanese one. The greatest danger to the global recovery is Obama’s hunger to punish the financial sector (tax banks, regulate banks, and lower bank pay). China is now tightening. It has done all that it can for the recovery. Now the recovery needs Congress and the White House to quit screwing with banks and do nothing. Without gridlock in Washington, America and the world may take the same path as Japan.
Geopolitics: Aided by the CIA, the Yemeni Air Force has killed AQAP’s leader of military operations. In other words, the top enemy general has been killed. The Yemeni Army says that it also captured AQAP’s #2 general and killed over 20 bad guys. AQAP says that its top general was injured, not killed. The Houthi rebels appear to have successfully shot down a Saudi military helicopter.
On Monday, CIA drones killed 15 Pakistani Taliban leaders in S. Waziristan, another attempt to kill H. Mehsud. The Taliban is saying that several of its top leaders have been killed in the Drone Blitz and its most secure hideouts have been compromised because it is riddled with CIA double agents. This admission is probably a prelude to a purge within the bad guy ranks.
Al Qaeda seems to be taking over the Pakistani Taliban and the Haqqani network. It also seems to be taking over Al-Shabab in Somalia. The Pak Army is debating a new offensive into N. Waziristan, which is Al-Qaeda headquarters and probably where Osama bin Laden is located. Al Qaeda will move its headquarters to Somalia if the Pak Army attacks N. Waziristan. These grand developments are being spurred by the Drone Blitz (DB). The DB features a constant patrol over bad guy territory by a drone wolf pack of four or five flying robots. The wolf pack attacks prearranged targets but it also attacks targets of opportunity, bad guys flushed out of hiding by the constant patrolling. Supposedly the Hellfire II missile becomes increasingly inaccurate when it targets a vehicle moving over 40 mph. I think this means that flushed out bad guys drive their vehicles like bats out of hell and perhaps at these speeds the Hellfire II does not connect. But the wolf pack can see where the fleeing bad guys land and can then establish a constant patrol over a new town. The movement of the drone wolf pack from town to town backs up this view.
Fundamentals: Since 1989 Japanese stocks have dropped over 70% and Japanese annual GDP growth has averaged only 1.2%. The ongoing Japanese crisis started with a real estate bubble pop, followed by a long-lasting financial meltdown, and ineffective government stimulus programs that have left Japan with a 200% debt to GDP ratio, over twice as high as America’s.
Starting in 2007, America experienced a real estate bubble pop, a financial meltdown, and ineffective fiscal stimulus that led to ballooning debt and a weak recovery. All of this is similar to the Japanese crisis except Japan never generated a super-steep yield curve to turbo-charge its banks, sleepily doled out its bank bailout cash over a decade and doled out its ineffective stimulus over an even longer time period. America’s super-steep yield curve, more aggressive bank bailout, and the one-time nature of its ineffective stimulus are the major differences between the American crisis and the Japanese one. The greatest danger to the global recovery is Obama’s hunger to punish the financial sector (tax banks, regulate banks, and lower bank pay). China is now tightening. It has done all that it can for the recovery. Now the recovery needs Congress and the White House to quit screwing with banks and do nothing. Without gridlock in Washington, America and the world may take the same path as Japan.
Geopolitics: Aided by the CIA, the Yemeni Air Force has killed AQAP’s leader of military operations. In other words, the top enemy general has been killed. The Yemeni Army says that it also captured AQAP’s #2 general and killed over 20 bad guys. AQAP says that its top general was injured, not killed. The Houthi rebels appear to have successfully shot down a Saudi military helicopter.
On Monday, CIA drones killed 15 Pakistani Taliban leaders in S. Waziristan, another attempt to kill H. Mehsud. The Taliban is saying that several of its top leaders have been killed in the Drone Blitz and its most secure hideouts have been compromised because it is riddled with CIA double agents. This admission is probably a prelude to a purge within the bad guy ranks.
Al Qaeda seems to be taking over the Pakistani Taliban and the Haqqani network. It also seems to be taking over Al-Shabab in Somalia. The Pak Army is debating a new offensive into N. Waziristan, which is Al-Qaeda headquarters and probably where Osama bin Laden is located. Al Qaeda will move its headquarters to Somalia if the Pak Army attacks N. Waziristan. These grand developments are being spurred by the Drone Blitz (DB). The DB features a constant patrol over bad guy territory by a drone wolf pack of four or five flying robots. The wolf pack attacks prearranged targets but it also attacks targets of opportunity, bad guys flushed out of hiding by the constant patrolling. Supposedly the Hellfire II missile becomes increasingly inaccurate when it targets a vehicle moving over 40 mph. I think this means that flushed out bad guys drive their vehicles like bats out of hell and perhaps at these speeds the Hellfire II does not connect. But the wolf pack can see where the fleeing bad guys land and can then establish a constant patrol over a new town. The movement of the drone wolf pack from town to town backs up this view.
Friday, January 15, 2010
CIA Not Pissed Off
Charts: The S&P 500 closed at 1136, down 1%. Support at 1132 held so graphic chart indicators still look okay. Other indicators such as leadership, volume patterns, and retail investor sentiment don’t look so hot.
Fundamentals: Intel reported blockbuster earnings, demonstrating the fundamental strength of tech. JP Morgan reported weak earnings, showing how financials are still in big trouble. Yesterday Team Obama unveiled a punitive scheme to tax big banks until they bleed. But the Fed has risked everything by artificially steepening the yield curve to give banks a gargantuan and ongoing subsidy. The Fed wants to build up bank reserves so they can withstand the coming losses from commercial real estate and defaulting consumer loans. It makes no sense to heap fresh taxes on banks while continuing to subsidize them.
Geopolitics: Thursday, CIA drones killed 15 bad guys in a town on the border between N. Waziristan and S. Waziristan. The target was Pakistani Taliban leader H. Mehsud. Reportedly H. Mehsud escaped just in time, although perhaps not unscratched. Friday, CIA drones killed 5 bad guys in a N. Waziristan town. The second drone attack was probably also targeting H. Mehsud although we don’t know yet if he was killed. H. Mehsud was involved in the assassination of the 7 CIA officers in Afghanistan a couple weeks ago. Since the assassination it has become clear that Al-Qaeda, the Pakistani Taliban, and the Haqqani network are all working closely together and drone strikes are hitting all three of these organizations very hard.
The CIA has for the first time publically addressed the topic of how pissed off it is. The CIA says that it is not pissed off at all, not even a tiny bit. The vast increase in drone strikes is not in retaliation for the assassination of its 7 top officers; a spike in new targets has simply become available in the routine business of running a spy agency. So I was wrong in my analysis that the Agency was and is extremely angry. It is actually cool as a cucumber. The Taliban is in trouble when the CIA does actually get pissed off.
Fundamentals: Intel reported blockbuster earnings, demonstrating the fundamental strength of tech. JP Morgan reported weak earnings, showing how financials are still in big trouble. Yesterday Team Obama unveiled a punitive scheme to tax big banks until they bleed. But the Fed has risked everything by artificially steepening the yield curve to give banks a gargantuan and ongoing subsidy. The Fed wants to build up bank reserves so they can withstand the coming losses from commercial real estate and defaulting consumer loans. It makes no sense to heap fresh taxes on banks while continuing to subsidize them.
Geopolitics: Thursday, CIA drones killed 15 bad guys in a town on the border between N. Waziristan and S. Waziristan. The target was Pakistani Taliban leader H. Mehsud. Reportedly H. Mehsud escaped just in time, although perhaps not unscratched. Friday, CIA drones killed 5 bad guys in a N. Waziristan town. The second drone attack was probably also targeting H. Mehsud although we don’t know yet if he was killed. H. Mehsud was involved in the assassination of the 7 CIA officers in Afghanistan a couple weeks ago. Since the assassination it has become clear that Al-Qaeda, the Pakistani Taliban, and the Haqqani network are all working closely together and drone strikes are hitting all three of these organizations very hard.
The CIA has for the first time publically addressed the topic of how pissed off it is. The CIA says that it is not pissed off at all, not even a tiny bit. The vast increase in drone strikes is not in retaliation for the assassination of its 7 top officers; a spike in new targets has simply become available in the routine business of running a spy agency. So I was wrong in my analysis that the Agency was and is extremely angry. It is actually cool as a cucumber. The Taliban is in trouble when the CIA does actually get pissed off.
Thursday, January 14, 2010
Osama's Mentor Likes CIA
Charts: The S&P 500 closed at 1148, up .2%. With small daily gains, graphic chart patterns are positive, the best they’ve been in this bull market. Volume patterns, leadership and other internal metrics are not that good.
Fundamentals: US December advanced retail sales disappointed. Some very bad economic data came out of Germany. Senate leader Reed and House leader Pelosi report progress in forging a single healthcare bill and leaks indicate they are coming up with a more bloated and nasty bill than expected. The weak data knocked down interest rates (good). After the bell Intel is reporting its earnings. Unlike Alcoa, Intel is the King Kong of economic bellwethers and its report will rock the market one way or the other.
Geopolitics: The most powerful cleric in Yemen is Sheik Zendani. Even though he once tutored Osama bin Laden the Sheik is a US ally. The government of Yemen and its supporters like Zendani are hardcore Sunnis with a worldview similar to Al-Qaeda’s, although they don’t want to attack the West as long as American foreign policy is being dictated by a vengeful hawk like Obama. Under a President like Jimmy Carter they would be eager to export Sunni jihad. In a recent press conference Sheik Zendani hinted that it would be a sin under Islam to kill a CIA officer. He also went on to warn the US Army not to put boots on the ground in Yemen, a hint that the US and British Special Forces already there are tolerable and (rightfully) an extension of the CIA. This is the offer the Sheik and his government are making to the US: Help us destroy the Houthi (Shiite) rebels first and then we will both destroy AQAP. While the Houthi rebels are being destroyed Yemen will take minor actions against AQAP to soften it up for the eventual big onslaught and keep it from launching more terror attacks like the botched Christmas airliner attack. Do not send the Marines or the US Army against the Houthi; instead utilize the Saudi Army, Yemeni Army/Navy, CIA, and British/American Special Forces.
China launched a cyber attack against Google. This helped Microsoft because it will do whatever the Chinese government says as far as censoring search in China and was not hacked. Raytheon makes military anti-hacking software.
Fundamentals: US December advanced retail sales disappointed. Some very bad economic data came out of Germany. Senate leader Reed and House leader Pelosi report progress in forging a single healthcare bill and leaks indicate they are coming up with a more bloated and nasty bill than expected. The weak data knocked down interest rates (good). After the bell Intel is reporting its earnings. Unlike Alcoa, Intel is the King Kong of economic bellwethers and its report will rock the market one way or the other.
Geopolitics: The most powerful cleric in Yemen is Sheik Zendani. Even though he once tutored Osama bin Laden the Sheik is a US ally. The government of Yemen and its supporters like Zendani are hardcore Sunnis with a worldview similar to Al-Qaeda’s, although they don’t want to attack the West as long as American foreign policy is being dictated by a vengeful hawk like Obama. Under a President like Jimmy Carter they would be eager to export Sunni jihad. In a recent press conference Sheik Zendani hinted that it would be a sin under Islam to kill a CIA officer. He also went on to warn the US Army not to put boots on the ground in Yemen, a hint that the US and British Special Forces already there are tolerable and (rightfully) an extension of the CIA. This is the offer the Sheik and his government are making to the US: Help us destroy the Houthi (Shiite) rebels first and then we will both destroy AQAP. While the Houthi rebels are being destroyed Yemen will take minor actions against AQAP to soften it up for the eventual big onslaught and keep it from launching more terror attacks like the botched Christmas airliner attack. Do not send the Marines or the US Army against the Houthi; instead utilize the Saudi Army, Yemeni Army/Navy, CIA, and British/American Special Forces.
China launched a cyber attack against Google. This helped Microsoft because it will do whatever the Chinese government says as far as censoring search in China and was not hacked. Raytheon makes military anti-hacking software.
Wednesday, January 13, 2010
NATO Afraid Of CIA
Charts: The S&P 500 closed at 1146, up .8%. Support at 1132 has been tested twice this week with the index bouncing off this level both times. The broad index has not violated its nearest support level (good). The Nasdaq did break below the psychological 2300 level but has now regained it (good). Financial are leading tech so far in 2010, iffy leadership.
Fundamentals: Global stock market weakness induced by Chinese monetary tightening has had the salutary effect of lowering US interest rates. Mortgage rates dropped 5 basis points over the past week which caused weekly mortgage applications to bump upward. Oil and other commodities have also moved down because of China growth fears, reducing the threat of inflation. There are at least some positive aspects to Chinese growth cooling. Of course this begs the question, is China’s growth really going to slow down? The effects of the so-called “Shanghai Sneeze” (China sneezes and whole world catches a cold) are already dissipating. Steel stocks levered to China resumed climbing by this afternoon and US interest rates ticked up. Still, your portfolio should be more than a one way bet on China.
Geopolitics: Yemeni commandoes killed a mid-level Al-Qaeda leader and arrested several more on Wednesday. In December the Yemeni Army killed 60 Al Qaeda members and should match that feat for January.
CIA drones killed 16 bad guys in Afghanistan, a sign that the CIA is still pissed off. NATO is trying to say that the latest drone strike did not originate with the CIA (ha ha ha), a sign that even NATO is worried about the CIA’s bad mood.
Syria is allowing much greater foreign investment in its banking sector and rapidly dismantling its socialist economy. Free market reform and strong GDP growth in Arab countries are major threats to Al-Qaeda.
China successfully tested an advanced missile interceptor (scary). After the test China beat its chest and warned that no country should sell weapons to Taiwan, or else. Taiwan replied that it is more likely to rejoin the mother country if it is armed to the teeth and not feeling bullied. There is little chance of a great power conflict between America and China over Taiwan; however, the odds of conflict are not zero. The part of coastal China facing Taiwan is bristling with missiles. If there were a dust up over Taiwan it would involve missiles, not foot soldiers. Taiwan just bought a billion dollar upgrade to its Patriot missile shield. It needs to upgrade its offensive missiles too.
Specific Stocks: Here are my stocks not levered to rapid growth in China: Perrigo (PRG) is a generic drug maker with a 70% market share for generic cough medicine. The unusually cold winter is driving demand for cough syrup. PG&E (PGC) is benefiting from cold weather too as Californians turn up the thermostat. Abbot Labs (ABT) makes the best infant formula and coated heart stints. Defense: ITT makes bomb detectors. As the Taliban gets hammered in open warfare in Afghanistan it will rely more and more on roadside bombs. Defense: Harris Corporation (HRS) is my biggest single stock holding. The Army’s grandiose Future Soldier System is being slashed. Bits and pieces of FSS are being farmed out into smaller programs. The part of FSS designed to integrate all military communication into a seamless web is being replaced by the Modernization of Enterprise Terminals program (MET). This program cleared a big hurtle today. HRS will design and partially build MET. China’s hunger for missile offense and defense is creating an arms race that helps Raytheon (RTN) and its Patriot system and Harris Corp’s MET.
Fundamentals: Global stock market weakness induced by Chinese monetary tightening has had the salutary effect of lowering US interest rates. Mortgage rates dropped 5 basis points over the past week which caused weekly mortgage applications to bump upward. Oil and other commodities have also moved down because of China growth fears, reducing the threat of inflation. There are at least some positive aspects to Chinese growth cooling. Of course this begs the question, is China’s growth really going to slow down? The effects of the so-called “Shanghai Sneeze” (China sneezes and whole world catches a cold) are already dissipating. Steel stocks levered to China resumed climbing by this afternoon and US interest rates ticked up. Still, your portfolio should be more than a one way bet on China.
Geopolitics: Yemeni commandoes killed a mid-level Al-Qaeda leader and arrested several more on Wednesday. In December the Yemeni Army killed 60 Al Qaeda members and should match that feat for January.
CIA drones killed 16 bad guys in Afghanistan, a sign that the CIA is still pissed off. NATO is trying to say that the latest drone strike did not originate with the CIA (ha ha ha), a sign that even NATO is worried about the CIA’s bad mood.
Syria is allowing much greater foreign investment in its banking sector and rapidly dismantling its socialist economy. Free market reform and strong GDP growth in Arab countries are major threats to Al-Qaeda.
China successfully tested an advanced missile interceptor (scary). After the test China beat its chest and warned that no country should sell weapons to Taiwan, or else. Taiwan replied that it is more likely to rejoin the mother country if it is armed to the teeth and not feeling bullied. There is little chance of a great power conflict between America and China over Taiwan; however, the odds of conflict are not zero. The part of coastal China facing Taiwan is bristling with missiles. If there were a dust up over Taiwan it would involve missiles, not foot soldiers. Taiwan just bought a billion dollar upgrade to its Patriot missile shield. It needs to upgrade its offensive missiles too.
Specific Stocks: Here are my stocks not levered to rapid growth in China: Perrigo (PRG) is a generic drug maker with a 70% market share for generic cough medicine. The unusually cold winter is driving demand for cough syrup. PG&E (PGC) is benefiting from cold weather too as Californians turn up the thermostat. Abbot Labs (ABT) makes the best infant formula and coated heart stints. Defense: ITT makes bomb detectors. As the Taliban gets hammered in open warfare in Afghanistan it will rely more and more on roadside bombs. Defense: Harris Corporation (HRS) is my biggest single stock holding. The Army’s grandiose Future Soldier System is being slashed. Bits and pieces of FSS are being farmed out into smaller programs. The part of FSS designed to integrate all military communication into a seamless web is being replaced by the Modernization of Enterprise Terminals program (MET). This program cleared a big hurtle today. HRS will design and partially build MET. China’s hunger for missile offense and defense is creating an arms race that helps Raytheon (RTN) and its Patriot system and Harris Corp’s MET.
Tuesday, January 12, 2010
Boots On The Ground
Charts: The S&P 500 closed at 1136, down 1%. Today’s decline was due to a poor start to the earnings season with Alcoa disappointing and China’s monetary tightening. Tech continues to falter and consumer staples are up, weak leadership. Since mid-October the index is up 3%. Support is at 1132, last week’s intraday low.
Fundamentals: On Monday China reported very strong economic data, in fact too strong because on Tuesday we learned the Asian giant is tightening monetary policy for the 2nd time in one week by curbing bank lending. Stocks levered to China are once again getting clobbered. American chain store sales fell 3% last week compared to the week before. American holiday spending was strong but there seems to be a sharp post holiday pullback.
Geopolitics: The Yemeni Army has recently given AQAP a black eye. It is now turning its attention back to the Houthi rebels in the north. Battles are flaring in the rugged mountains along the Saudi border. On Tuesday 8 Yemeni soldiers and 17 bad guys were killed. President Obama told People magazine that he would not completely rule out sending US troops to Yemen and/or Somalia but thinks there will be no need for “boots on the ground.” Joint Chiefs Chairman Adm. Mike Mullen said that there are not any boots on the ground in Yemen at present. He then went on to say that the US is not leading the Yemeni Army into combat. Adm. Mullen is a little clumsy with his spin. We know there are US Special Forces in Yemen, who wear boots, which make contact with the ground. And while we can’t know for sure that US Special Forces are leading the Yemeni Army in combat this is what Special Forces do, they train local troops and lead them into combat. The backdrop for all this evasive talk is AQAP screaming it is at war with America, not the Yemeni government. And the bad guy propaganda is having an effect as the #1 moderate Yemeni cleric backs a “no-US-boots-on-the-ground policy.” You can see why it is better (if possible) to have only the CIA running a Long War hotspot. Unfortunately that is not possible in Yemen.
Fundamentals: On Monday China reported very strong economic data, in fact too strong because on Tuesday we learned the Asian giant is tightening monetary policy for the 2nd time in one week by curbing bank lending. Stocks levered to China are once again getting clobbered. American chain store sales fell 3% last week compared to the week before. American holiday spending was strong but there seems to be a sharp post holiday pullback.
Geopolitics: The Yemeni Army has recently given AQAP a black eye. It is now turning its attention back to the Houthi rebels in the north. Battles are flaring in the rugged mountains along the Saudi border. On Tuesday 8 Yemeni soldiers and 17 bad guys were killed. President Obama told People magazine that he would not completely rule out sending US troops to Yemen and/or Somalia but thinks there will be no need for “boots on the ground.” Joint Chiefs Chairman Adm. Mike Mullen said that there are not any boots on the ground in Yemen at present. He then went on to say that the US is not leading the Yemeni Army into combat. Adm. Mullen is a little clumsy with his spin. We know there are US Special Forces in Yemen, who wear boots, which make contact with the ground. And while we can’t know for sure that US Special Forces are leading the Yemeni Army in combat this is what Special Forces do, they train local troops and lead them into combat. The backdrop for all this evasive talk is AQAP screaming it is at war with America, not the Yemeni government. And the bad guy propaganda is having an effect as the #1 moderate Yemeni cleric backs a “no-US-boots-on-the-ground policy.” You can see why it is better (if possible) to have only the CIA running a Long War hotspot. Unfortunately that is not possible in Yemen.
Monday, January 11, 2010
Media Morons
Geopolitics: The Pak government is ramping up its protest campaign against the CIA’s drone fleet. But the Agency has asked for and received permission to dramatically increase the size of its fleet of flying robots in the Af/Pak theater. Rumors are bubbling that the new drones will be Reapers, not Predators; hunter-killers not surveillance machines. Reapers are 14 times more deadly than Predators. The CIA is ignoring PR implications and declaring a new kind of war against the bad guys: a Drone Blitz.
While this is going on the liberal Media is saying the CIA is incompetent for allowing an Al-Qaeda double agent to kill 7 officers two weeks ago. Is the CIA incompetent? First off, the Al-Qaeda double agent was searched before the fatal meeting with the CIA officers, contrary to what the Media initially reported (sloppy at best malicious at worst). The double-agent was probably wearing an underwear bomb, which is a new Al-Qaeda invention and can only now be countered. So all we are left with is the fact that Al-Qaeda has produced at least one successful double agent.
Since double agents on both sides are inevitable the logical question is: Does the CIA have more and better double agents than Al-Qaeda? The answer: Yes, every drone strike is evidence that a CIA double agent has done his job. The drones don’t fly around randomly and shoot stray bad guys. Drone missions are guided by intelligence gathered by CIA double agents and paid informants. There have been hundreds of drone strikes; therefore dozens of effective CIA double agents are on the job. And CIA agents don’t have to kill themselves, unlike Al-Qaeda’s, which makes our “good-bad guys” vastly more productive; a gift that keeps on giving.
Let’s look around the globe to see how the CIA is doing in the rest of the Long War. Over the weekend, a CIA supported Islamic militia (Ahlu Sunna) attacked a Hizbul Islam controlled town in Somalia and a battle is raging. Hizbul Islam is Al-Shabab’s partner and together they run a fully functioning Taliban state within Somalia. Also over the weekend, there is a separate report that Al-Shabab has attacked another Hizbul Islam town in a different part of Somalia and a second battle is raging. Almost certainly Al-Shabab has not really attacked its partner. It is most likely that a second CIA supported militia pretending to be Al-Shabab has attacked the second Hizbul Islam town. Incidentally, the word Al-Qaeda means “The Camp,” specifically a camp used to train Islamic militias. The CIA is running the exact same kind of camps as al-Qaeda except its camps produce good-bad guys. And the good-bad guys are going to war.
In Yemen, the CIA is directing the Yemeni Army’s airstrikes, making them much more effective. And something interesting is now happening when a Yemeni airstrike hits a Houthi rebel position. Local non-Houthi tribesmen are attacking the bad guys right after the bombs stop falling. The non-Houthi indigenous fighters seem to be achieving very high kill ratios, indicative of CIA training and support.
To put it bluntly, the CIA is kicking nine yards of ass.
While this is going on the liberal Media is saying the CIA is incompetent for allowing an Al-Qaeda double agent to kill 7 officers two weeks ago. Is the CIA incompetent? First off, the Al-Qaeda double agent was searched before the fatal meeting with the CIA officers, contrary to what the Media initially reported (sloppy at best malicious at worst). The double-agent was probably wearing an underwear bomb, which is a new Al-Qaeda invention and can only now be countered. So all we are left with is the fact that Al-Qaeda has produced at least one successful double agent.
Since double agents on both sides are inevitable the logical question is: Does the CIA have more and better double agents than Al-Qaeda? The answer: Yes, every drone strike is evidence that a CIA double agent has done his job. The drones don’t fly around randomly and shoot stray bad guys. Drone missions are guided by intelligence gathered by CIA double agents and paid informants. There have been hundreds of drone strikes; therefore dozens of effective CIA double agents are on the job. And CIA agents don’t have to kill themselves, unlike Al-Qaeda’s, which makes our “good-bad guys” vastly more productive; a gift that keeps on giving.
Let’s look around the globe to see how the CIA is doing in the rest of the Long War. Over the weekend, a CIA supported Islamic militia (Ahlu Sunna) attacked a Hizbul Islam controlled town in Somalia and a battle is raging. Hizbul Islam is Al-Shabab’s partner and together they run a fully functioning Taliban state within Somalia. Also over the weekend, there is a separate report that Al-Shabab has attacked another Hizbul Islam town in a different part of Somalia and a second battle is raging. Almost certainly Al-Shabab has not really attacked its partner. It is most likely that a second CIA supported militia pretending to be Al-Shabab has attacked the second Hizbul Islam town. Incidentally, the word Al-Qaeda means “The Camp,” specifically a camp used to train Islamic militias. The CIA is running the exact same kind of camps as al-Qaeda except its camps produce good-bad guys. And the good-bad guys are going to war.
In Yemen, the CIA is directing the Yemeni Army’s airstrikes, making them much more effective. And something interesting is now happening when a Yemeni airstrike hits a Houthi rebel position. Local non-Houthi tribesmen are attacking the bad guys right after the bombs stop falling. The non-Houthi indigenous fighters seem to be achieving very high kill ratios, indicative of CIA training and support.
To put it bluntly, the CIA is kicking nine yards of ass.
Friday, January 8, 2010
Happy Tigers, Angry CIA
Charts: The S&P 500 closed at 1145, up .3%. Uptrend intact. Leadership was very good today with tech, industrials and materials up sharply.
Fundamentals: The government’s big monthly jobs reports came in much worse than expected. This caused interest rates to fall, taking some sting from the very bad fundamental news. It is impossible to overstate how damaging interest rate hikes will be to the recovery. For example, state pension funds don’t use mark-to-market accounting, relying instead on smoke and mirror gimmickry to show a combined shortfall of “only” $500 billion. Honest accounting would reveal a combined state pension shortfall of a staggering $2 trillion. The federal government will eventually have to float another $1.5 trillion in debt to bail out the states; which of course is on top of the massive federal debt already in the pipeline. Servicing America’s insane debt load will require very low interest rates. A strong recovery is a bad thing from this perspective. But don’t panic, on the sunny side of the planet (Asia) we have this data: December S. Korean exports to China were up 94%. Taiwan up 91%. Malaysia up 53%. In 2010 steel production in non-Chinese tiger economies will rise faster than in the big dragon itself.
Geopolitics: CIA drones killed 3 bad guy leaders in N. Waziristan Friday. The Taliban house the 3 bad guys were in was not just hit by missile fire, it was vaporized. The Pak government is telling the US that it must stop this new and savage drone campaign because the Pak public won’t stand for it. US diplomats in Pakistan are having their vehicles searched and are being harassed in other ways, this shows how much the drone campaign is detested. Taliban terror strikes in the non-tribal regions killed 10 civilians Friday. At the beginning of the drone campaign the Taliban was killing about 80 civilians a day. The bad guys are so frazzled they aren’t doing their job very well. CIA mood forecast: As hard as it is to believe, the agency is actually more pissed off today than it was yesterday. It is expected to be even more pissed tomorrow. The earliest forecast for mood improvement is sometime next week.
Specific stocks: Steel mills that have their own iron ore mines will outperform those that do not. US Steel (X) is an example. Let’s talk missiles and missile defense. Because he’s such a big hawk and liberals hate him for it, President Obama recently has been promising to eliminate all nuclear weapons. Because he’s a typical politician who bends the truth, he’s also been saying an anti-nuke deal with Russia is at hand. Foolishly, investors were sucked in and Raytheon (RTN) sold off. While all this was going on the Navy was busily firing Raytheon built Tomahawk cruise missiles into Yemen. Lockheed Martin (LMT) makes the Hellfire II missile fired by CIA drones. But LMT is levered to the F-35 fighter, which is on the chopping block. I am overweight defense stocks with ITT (night vision goggles and roadside bomb detection), HRS (tactical radios), and RTN.
Fundamentals: The government’s big monthly jobs reports came in much worse than expected. This caused interest rates to fall, taking some sting from the very bad fundamental news. It is impossible to overstate how damaging interest rate hikes will be to the recovery. For example, state pension funds don’t use mark-to-market accounting, relying instead on smoke and mirror gimmickry to show a combined shortfall of “only” $500 billion. Honest accounting would reveal a combined state pension shortfall of a staggering $2 trillion. The federal government will eventually have to float another $1.5 trillion in debt to bail out the states; which of course is on top of the massive federal debt already in the pipeline. Servicing America’s insane debt load will require very low interest rates. A strong recovery is a bad thing from this perspective. But don’t panic, on the sunny side of the planet (Asia) we have this data: December S. Korean exports to China were up 94%. Taiwan up 91%. Malaysia up 53%. In 2010 steel production in non-Chinese tiger economies will rise faster than in the big dragon itself.
Geopolitics: CIA drones killed 3 bad guy leaders in N. Waziristan Friday. The Taliban house the 3 bad guys were in was not just hit by missile fire, it was vaporized. The Pak government is telling the US that it must stop this new and savage drone campaign because the Pak public won’t stand for it. US diplomats in Pakistan are having their vehicles searched and are being harassed in other ways, this shows how much the drone campaign is detested. Taliban terror strikes in the non-tribal regions killed 10 civilians Friday. At the beginning of the drone campaign the Taliban was killing about 80 civilians a day. The bad guys are so frazzled they aren’t doing their job very well. CIA mood forecast: As hard as it is to believe, the agency is actually more pissed off today than it was yesterday. It is expected to be even more pissed tomorrow. The earliest forecast for mood improvement is sometime next week.
Specific stocks: Steel mills that have their own iron ore mines will outperform those that do not. US Steel (X) is an example. Let’s talk missiles and missile defense. Because he’s such a big hawk and liberals hate him for it, President Obama recently has been promising to eliminate all nuclear weapons. Because he’s a typical politician who bends the truth, he’s also been saying an anti-nuke deal with Russia is at hand. Foolishly, investors were sucked in and Raytheon (RTN) sold off. While all this was going on the Navy was busily firing Raytheon built Tomahawk cruise missiles into Yemen. Lockheed Martin (LMT) makes the Hellfire II missile fired by CIA drones. But LMT is levered to the F-35 fighter, which is on the chopping block. I am overweight defense stocks with ITT (night vision goggles and roadside bomb detection), HRS (tactical radios), and RTN.
Thursday, January 7, 2010
CIA Still Pissed Off
Charts: The S&P 500 closed at 1142, up .6%. Uptrend intact. Leadership has weakened as tech deteriorates. Credit, commodity, currency, and stock markets are no longer moving in unison, a sign that normal conditions are replacing the carry trade.
Fundamentals: China raised interest rates on a short term government bond overnight, a potential forerunner to generalized tightening by the Asian giant. This hurt stocks levered to China, especially where currency is a factor such as Korean stocks. Steel stocks took it on the chin in the morning but then recovered as investors remembered that recently India slapped a tariff on its iron ore exports to China. The Indian government sees so much demand for iron ore inside India that it doesn’t want to export very much to China. The spot price for iron ore is currently about 80% higher than last year’s contract price, bullish for the 2010 contract price currently under negotiation. US retail continues to look better, which speaks to being diversified, not just making a one way bet on China.
Geopolitics: In Pakistan, CIA drones have moved on to another N. Waziristan village. Five drones have established a multi-day vigil over the town in question, methodically blowing away Taliban houses and bad guys and afterwards staying in place, establishing an ominous death watch. This is triggering the whack-a-mole effect. Bad guys are hitting both India and Pakistan on either side of the line-of-control (boundary) in Kashmir, stirring up tension between the nuclear armed adversaries. Massive drone strikes are very unpopular in Pakistan and the media is lashing out against America. Normally this would elicit a slowdown in drone strikes but the CIA is still extremely pissed off and there is little sign that its anger is yet under control.
Fundamentals: China raised interest rates on a short term government bond overnight, a potential forerunner to generalized tightening by the Asian giant. This hurt stocks levered to China, especially where currency is a factor such as Korean stocks. Steel stocks took it on the chin in the morning but then recovered as investors remembered that recently India slapped a tariff on its iron ore exports to China. The Indian government sees so much demand for iron ore inside India that it doesn’t want to export very much to China. The spot price for iron ore is currently about 80% higher than last year’s contract price, bullish for the 2010 contract price currently under negotiation. US retail continues to look better, which speaks to being diversified, not just making a one way bet on China.
Geopolitics: In Pakistan, CIA drones have moved on to another N. Waziristan village. Five drones have established a multi-day vigil over the town in question, methodically blowing away Taliban houses and bad guys and afterwards staying in place, establishing an ominous death watch. This is triggering the whack-a-mole effect. Bad guys are hitting both India and Pakistan on either side of the line-of-control (boundary) in Kashmir, stirring up tension between the nuclear armed adversaries. Massive drone strikes are very unpopular in Pakistan and the media is lashing out against America. Normally this would elicit a slowdown in drone strikes but the CIA is still extremely pissed off and there is little sign that its anger is yet under control.
Wednesday, January 6, 2010
Al-Qaeda Doesn't Understand Hot Tubs
Charts: Today’s newsletter goes out before the market closes so let’s take a long term look at charts. Our first Fibonacci resistance level of 1120 was breached once and fell back. It then blasted above 1120 in big volume with a very good advance/decline line and nice leadership and has stayed above it since. So 1120 was successfully tested. This indicates the rally still has some legs. In real terms the index is still off 28% over the past decade and could therefore still be in a secular bear market, making the current uptrend only a cyclical bull. The next Fibonacci resistance level is 1228 (sorry, I did the math wrong in an earlier newsletter, this is accurate). Breaking above 1228 with other good technical indicators would cast grave doubt on the secular bear scenario.
Fundamentals: Goldman Sachs upgraded the entire industrial and material sectors, singling out X, ZEUS, CBI, MMM, and DOW. Industrials are outperforming because of China. I own some of Goldman’s picks already but my biggest industrial position is the Korean index (EWY). I think Wall Street doesn’t quite get Korea. Analysts will say that Korean households carry a huge debt burden, one of the highest in the world. Not true, Koreans have a very high rate of self-employment and small company debt shows up as household debt because of accounting quirks. Everyone is focused on the dollar carry trade and China’s peg to the dollar but forgets that the Chinese Yuan has appreciated over 20% in the past few years against the Korean Won, allowing Korea to export like crazy into China. Recently Korean Electric (KEP) won a bid to build several nuclear reactors in the Persian Gulf and is making similar deals around the world. Korean industry is as advanced as Europe or America but has cost and currency advantages like an emerging market.
Geopolitics: Let’s take the long view here as well. The Cold War is as similar to the Long War as WW I was to WW II; there are big differences but overall the wars are similar and will have the same impact on the stock market. From 1945 to 1948 Britain fought the Cold War pretty much alone. In 1948 America jumped in with both feet with the Berlin airlift. The world had never seen anything like the airlift. America invented modern air traffic control and an entirely new sort of computer system to make it work. The Soviets were dumbfounded and terrified at this burst of technical prowess. Also, the bad guys knew that entering the CW was very unpopular in mainstream America; so how did Truman even pull it off? Whenever dictatorships fight America they always put great stock in their own will to fight and the Yankees’ ambivalence toward war with a desire to hot tub instead, thinking this gives the bad guys a huge advantage. Toward the end of the Cold War the Soviets figured out that American pacifism can suddenly and unpredictably reverse and what once looked like a pussycat is now a huge tiger ready to tear you apart. Bear in mind that during WW II every great power was fully mobilized except America, who never even came close to marshalling all its military resources; it fought with one hand tied behind its back and still created nuclear weapons, military computers, etc... Today we are in the same spot as we were in 1948: just beginning to fight against an enemy that is technologically inferior, has a tremendous will to fight, but doesn’t understand how the pussycat can morph into a tiger. And stock market charts today look like the late 40s.
Fundamentals: Goldman Sachs upgraded the entire industrial and material sectors, singling out X, ZEUS, CBI, MMM, and DOW. Industrials are outperforming because of China. I own some of Goldman’s picks already but my biggest industrial position is the Korean index (EWY). I think Wall Street doesn’t quite get Korea. Analysts will say that Korean households carry a huge debt burden, one of the highest in the world. Not true, Koreans have a very high rate of self-employment and small company debt shows up as household debt because of accounting quirks. Everyone is focused on the dollar carry trade and China’s peg to the dollar but forgets that the Chinese Yuan has appreciated over 20% in the past few years against the Korean Won, allowing Korea to export like crazy into China. Recently Korean Electric (KEP) won a bid to build several nuclear reactors in the Persian Gulf and is making similar deals around the world. Korean industry is as advanced as Europe or America but has cost and currency advantages like an emerging market.
Geopolitics: Let’s take the long view here as well. The Cold War is as similar to the Long War as WW I was to WW II; there are big differences but overall the wars are similar and will have the same impact on the stock market. From 1945 to 1948 Britain fought the Cold War pretty much alone. In 1948 America jumped in with both feet with the Berlin airlift. The world had never seen anything like the airlift. America invented modern air traffic control and an entirely new sort of computer system to make it work. The Soviets were dumbfounded and terrified at this burst of technical prowess. Also, the bad guys knew that entering the CW was very unpopular in mainstream America; so how did Truman even pull it off? Whenever dictatorships fight America they always put great stock in their own will to fight and the Yankees’ ambivalence toward war with a desire to hot tub instead, thinking this gives the bad guys a huge advantage. Toward the end of the Cold War the Soviets figured out that American pacifism can suddenly and unpredictably reverse and what once looked like a pussycat is now a huge tiger ready to tear you apart. Bear in mind that during WW II every great power was fully mobilized except America, who never even came close to marshalling all its military resources; it fought with one hand tied behind its back and still created nuclear weapons, military computers, etc... Today we are in the same spot as we were in 1948: just beginning to fight against an enemy that is technologically inferior, has a tremendous will to fight, but doesn’t understand how the pussycat can morph into a tiger. And stock market charts today look like the late 40s.
Tuesday, January 5, 2010
Bad Guys and Good Guys Forced To Fight
Charts: The S&P 500 closed at 1137, up .3%. Notching a small gain after the big one yesterday is bullish. Yield on the 10-year note went down and bond prices strengthened (good).
Fundamentals: Pending home sales plunged 16% in November, highlighting the fact that the US housing market is totally dependent on massive government subsidies that will need to be extended. Factory orders were up and car sales look good.
Geopolitics: The Long War Journal reports that recent CIA drone strikes in N. Waziristan have targeted the Taliban leaders who signed peace treaties with the Pak Army, apparently killing some of them. The CIA is dictating policy to both the Pak Army and the Taliban, forcing them to keep fighting each other. General McChrystal is meeting with top Pak Army officers to smooth ruffled feathers.
In Afghanistan, President Karzai cannot get his picks for cabinet posts through the Afghan parliament. The State Department may have a hand in stymieing Karzai. This marginalizes Karzai and with the new election indefinitely postponed it will make him a symbolic leader, a positive development. America needs to put the Afghan Army in charge of the country because Afghanistan is not ready for democracy.
In China, the communist party is rehabilitating Chiang Kai-Shek, the leader of the nationalist movement who battled Mao for control of the country 70 years ago. The new party line is that Chiang was a good man who fought hard against the Japanese and was simply misguided when he attacked Mao and the communists. Taiwan was founded by Chiang Kai-Shek and is currently controlled by the political party that he also founded. Rehabilitating him is helpful for the peaceful integration of Taiwan and China along the lines of Hong Kong’s integration. The only possible great power conflict in the near future is between China and America over Taiwan. Everyday this conflict becomes less and less likely. Therefore, there is only one war on the planet, the Long War. China and Russia have Islamic insurgencies at home, so the great powers should eventually become united in prosecuting the LW.
Specific Stocks: Where can we find value? BUCY and CAT are the 2nd and 1st biggest mining machinery makers. CAT’s PE is 27%, 5 year EPS growth is 10.6%, and overall margins are 6.9%. BUCY’s PE is 16%, 5 year EPS growth is 12%, and overall margins are 9.3%. Based purely on these numbers BUCY offers more value.
Fundamentals: Pending home sales plunged 16% in November, highlighting the fact that the US housing market is totally dependent on massive government subsidies that will need to be extended. Factory orders were up and car sales look good.
Geopolitics: The Long War Journal reports that recent CIA drone strikes in N. Waziristan have targeted the Taliban leaders who signed peace treaties with the Pak Army, apparently killing some of them. The CIA is dictating policy to both the Pak Army and the Taliban, forcing them to keep fighting each other. General McChrystal is meeting with top Pak Army officers to smooth ruffled feathers.
In Afghanistan, President Karzai cannot get his picks for cabinet posts through the Afghan parliament. The State Department may have a hand in stymieing Karzai. This marginalizes Karzai and with the new election indefinitely postponed it will make him a symbolic leader, a positive development. America needs to put the Afghan Army in charge of the country because Afghanistan is not ready for democracy.
In China, the communist party is rehabilitating Chiang Kai-Shek, the leader of the nationalist movement who battled Mao for control of the country 70 years ago. The new party line is that Chiang was a good man who fought hard against the Japanese and was simply misguided when he attacked Mao and the communists. Taiwan was founded by Chiang Kai-Shek and is currently controlled by the political party that he also founded. Rehabilitating him is helpful for the peaceful integration of Taiwan and China along the lines of Hong Kong’s integration. The only possible great power conflict in the near future is between China and America over Taiwan. Everyday this conflict becomes less and less likely. Therefore, there is only one war on the planet, the Long War. China and Russia have Islamic insurgencies at home, so the great powers should eventually become united in prosecuting the LW.
Specific Stocks: Where can we find value? BUCY and CAT are the 2nd and 1st biggest mining machinery makers. CAT’s PE is 27%, 5 year EPS growth is 10.6%, and overall margins are 6.9%. BUCY’s PE is 16%, 5 year EPS growth is 12%, and overall margins are 9.3%. Based purely on these numbers BUCY offers more value.
Monday, January 4, 2010
CIA Extremely Pissed Off
Charts: The S&P 500 closed at 1133, up 1.6%; blowing past resistance of 1120 in big volume with good leadership. 1120 is not just another resistance level. The 50% retracement of the bear market’s losses means that the broad index is at the halfway point of the last bull market, where a huge number of investors are breakeven. They could dump shares, feel no pain, and abandon the stock market for something else. Chartists call this “overhead supply,” which triggers a Fibonacci resistance level, bread and butter to chart technicians. Furthermore, the first few trading days in January generally set the tone for the entire year, probably more so in 2010 because there are no big surprises (like Lehman’s collapse) around the corner.
Fundamentals: China, America, S. Korea, Britain, and the Euro-zone reported better than expected manufacturing data. These 5 represent about 80% of global industrial activity. Chinese data was the best in 5 years. Global chip sales increased 8.5% in November. In late December, US auto sales jumped. US RV sales are ramping up. Americans only buy RVs when they are happy.
Geopolitics: In Yemen, Saudi airstrikes killed 16 Houthi rebels. The Yemeni Army continues attacking AQAP. The White House confirmed that America is now using cruise missiles against AQAP and will take other direct military action if necessary (super-hawkish). Britain and America are convening a Yemen summit that all major allies are being forced to attend. In Pakistan, CIA drones killed 5 more bad guys in N. Waziristan Sunday night. The attacks occurred over a specific village, Hurja. Locals are reporting that there have been four drones permanently circling this town over the past few days. When one of the drones runs low on fuel it is replaced by another. Locals are complaining bitterly that if they so much as twitch, the drones start firing missiles, even humanitarian efforts to help the injured draw missile strikes (utterly heartless). The CIA has never used drones in this fashion before. The CIA is extremely pissed at this town and everybody in it.
Since we are starting a new decade in the Long War, let’s step back and take the long view. The Economist magazine forecasts that Iraq’s GDP will expand by 6.2% in 2010, #10 in the world. America’s most resolute military ally in Africa, Ethiopia, will grow at 7% this year, #5 in the world. America’s archenemy Venezuela has a 2010 GDP forecast of -3.4%, among the worst in the world. Data out of Iran is patchy, but its economy is a basket case. When violence was low in Afghanistan in 2004 its economy grew by a scorching 29%, probably #1 in the world. In 2009 Afghan GDP grew by a respectable 3.4%, despite escalating violence. There is no Afghan forecast but if the war goes well the economy will boom. Progress in the Long War is highly dependent on economic performance in the various economies of the combatant countries. Progress has been good so far.
Specific Stocks: Goldman Sachs upgraded Dow Chemical (DOW) today. Chemical companies like DOW that rely on natural gas for a feedstock have a price advantage over the ones reliant on oil. Increased industrial activity is good for all chemical outfits.
Fundamentals: China, America, S. Korea, Britain, and the Euro-zone reported better than expected manufacturing data. These 5 represent about 80% of global industrial activity. Chinese data was the best in 5 years. Global chip sales increased 8.5% in November. In late December, US auto sales jumped. US RV sales are ramping up. Americans only buy RVs when they are happy.
Geopolitics: In Yemen, Saudi airstrikes killed 16 Houthi rebels. The Yemeni Army continues attacking AQAP. The White House confirmed that America is now using cruise missiles against AQAP and will take other direct military action if necessary (super-hawkish). Britain and America are convening a Yemen summit that all major allies are being forced to attend. In Pakistan, CIA drones killed 5 more bad guys in N. Waziristan Sunday night. The attacks occurred over a specific village, Hurja. Locals are reporting that there have been four drones permanently circling this town over the past few days. When one of the drones runs low on fuel it is replaced by another. Locals are complaining bitterly that if they so much as twitch, the drones start firing missiles, even humanitarian efforts to help the injured draw missile strikes (utterly heartless). The CIA has never used drones in this fashion before. The CIA is extremely pissed at this town and everybody in it.
Since we are starting a new decade in the Long War, let’s step back and take the long view. The Economist magazine forecasts that Iraq’s GDP will expand by 6.2% in 2010, #10 in the world. America’s most resolute military ally in Africa, Ethiopia, will grow at 7% this year, #5 in the world. America’s archenemy Venezuela has a 2010 GDP forecast of -3.4%, among the worst in the world. Data out of Iran is patchy, but its economy is a basket case. When violence was low in Afghanistan in 2004 its economy grew by a scorching 29%, probably #1 in the world. In 2009 Afghan GDP grew by a respectable 3.4%, despite escalating violence. There is no Afghan forecast but if the war goes well the economy will boom. Progress in the Long War is highly dependent on economic performance in the various economies of the combatant countries. Progress has been good so far.
Specific Stocks: Goldman Sachs upgraded Dow Chemical (DOW) today. Chemical companies like DOW that rely on natural gas for a feedstock have a price advantage over the ones reliant on oil. Increased industrial activity is good for all chemical outfits.
Saturday, January 2, 2010
CIA Revenge
Geopolitics: The attack that killed 7 CIA officers at its forward base in Khost, Afghanistan is reported to be the handiwork of the Al-Qaeda linked Haqqani network. After getting mauled in S. Waziristan, H. Mehsud’s Pakistani Taliban is probably the second deadliest bad guy organization in the region, the Haqqani network is now the most powerful in Af/Pak and therefore the world. This network is run by a father/son team: J. Haqqani and S. Haqqani. The old man (J. Haqqani) is a hero from the mujahedin’s anti-Soviet war in the 80s. A brilliant military leader, J. Haqqani was the first mujahedin commander to capture and hold a major city from the communists in 1991. A year later he was instrumental in the Taliban’s victory in Kabul. He is an old buddy of Osama bin Laden and is probably the most important OBL protector in N. Waziristan, a safe haven and home base for the Haqqani network and Al-Qaeda itself.
The CIA’s Khost base, we are told, is a lynchpin in the agency’s Af/Pak drone force. A few days before the suicide bomber hit the CIA in Khost there had been a large number of successful drone strikes in N. Waziristan, killing a couple dozen or more Haqqani leaders/fighters plus a few Pakistani Taliban bad guys. The drones continued hitting targets in N. Waziristan two days after the Khost bombing, killing still more Haqqani fighters and leaders, affording the CIA some revenge.
The Pak Army had some sort of peace treaty with the bad guys in N. Waziristan before it began the big ground campaign in S. Waziristan. By flying so many drone missions into N. Waziristan, the CIA has effectively abrogated that peace treaty. Besides hitting back at the CIA, the bad guys have responded by massively increasing their terror strikes in the non-tribal regions of Pakistan, killing about 80 civilians a day over the past couple days.
A similar phenomenon has occurred in Yemen. Up until a few months ago the Yemeni Army has been exclusively fighting the Houthi rebels in the north, pretty much leaving the Al-Qaeda (AQAP) rebels alone in the south. But now, after US prodding, the Yemeni Army is attacking AQAP. This in turn seems to have caused AQAP to lash out against the US. Interestingly, the leader of the Houthi rebellion said Saturday that he was open to peace talks with the government. The Houthi rebels are Shiite and instinctively hate Al-Qaeda because it is not only Sunni but considers all Shiites apostates who must either be converted or killed. The Houthi rebellion will only cooperate with Al-Qaeda if it has no other choice. Robust US involvement could potentially turn the Houthi rebels into good-bad-guys, although nothing like this is happening yet.
So we are seeing an escalation of the wars in Yemen and Af/Pak. At the same time, December saw zero American combat deaths in Iraq. A US official in Yemen recently said, “Iraq was yesterday’s war. Afghanistan is today’s war… Yemen will be tomorrow’s war.”
As far as the stock market is concerned, the heat has definitely notched up several degrees in the Long War and consequently market volatility is increasing in a small way.
The CIA’s Khost base, we are told, is a lynchpin in the agency’s Af/Pak drone force. A few days before the suicide bomber hit the CIA in Khost there had been a large number of successful drone strikes in N. Waziristan, killing a couple dozen or more Haqqani leaders/fighters plus a few Pakistani Taliban bad guys. The drones continued hitting targets in N. Waziristan two days after the Khost bombing, killing still more Haqqani fighters and leaders, affording the CIA some revenge.
The Pak Army had some sort of peace treaty with the bad guys in N. Waziristan before it began the big ground campaign in S. Waziristan. By flying so many drone missions into N. Waziristan, the CIA has effectively abrogated that peace treaty. Besides hitting back at the CIA, the bad guys have responded by massively increasing their terror strikes in the non-tribal regions of Pakistan, killing about 80 civilians a day over the past couple days.
A similar phenomenon has occurred in Yemen. Up until a few months ago the Yemeni Army has been exclusively fighting the Houthi rebels in the north, pretty much leaving the Al-Qaeda (AQAP) rebels alone in the south. But now, after US prodding, the Yemeni Army is attacking AQAP. This in turn seems to have caused AQAP to lash out against the US. Interestingly, the leader of the Houthi rebellion said Saturday that he was open to peace talks with the government. The Houthi rebels are Shiite and instinctively hate Al-Qaeda because it is not only Sunni but considers all Shiites apostates who must either be converted or killed. The Houthi rebellion will only cooperate with Al-Qaeda if it has no other choice. Robust US involvement could potentially turn the Houthi rebels into good-bad-guys, although nothing like this is happening yet.
So we are seeing an escalation of the wars in Yemen and Af/Pak. At the same time, December saw zero American combat deaths in Iraq. A US official in Yemen recently said, “Iraq was yesterday’s war. Afghanistan is today’s war… Yemen will be tomorrow’s war.”
As far as the stock market is concerned, the heat has definitely notched up several degrees in the Long War and consequently market volatility is increasing in a small way.
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