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.