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.
Monday, January 18, 2010
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