Geopolitics: Good bad guys are good. Bad good guys are bad. The two are not to be confused. Bad good guys are democratic governments or pro-democratic groups that act against America’s interest in the Long War, such as Israel’s spy agency, Mossad. Recently Mossad was caught red-handed after assassinating a Hamas commander in Dubai. There is no way humble Dubai busted the mighty Mossad without help from one of the world’s top intelligence agencies. In the same vein, since 2008 Lebanon’s security services have broken up 25 Mossad spy rings. Lebanon has been using suspiciously sophisticated electronics equipment to dismantle Mossad operations. The Lebanese government hints that Russia or France has been helping it. No way. It is more likely the CIA is quietly declaring war against Mossad.
The democratically elected government of Turkey is openly Islamist. It advocates an Islamic theocratic government but with elections. This is exactly what Iran says. Up till now the Turkish government had been pretty mild mannered, nothing like Iran. But within the last couple weeks it has started arresting retired ex-Army officers who supposedly planned a coup in 2006, but never acted on these supposed plans. For the last 70 years the Turkish army has overthrown civilian governments when they become too Islamist, a cornerstone of Turkish stability and secularism. Turkey’s current civilian government is trying to destroy this covenant. It is officially a bad good guy organization. Obama is so far doing nothing about this problem (busy with healthcare). The Turkish stock market is crashing as a result of all this, which is not helping the turmoil in nearby Greece.
Amnesty International is also a bad good guy organization. It has put a former Gitmo detainee in a position of power. This guy is pro-Taliban and very open about his affiliation. Partially through Amnesty International’s lobbying efforts, a recent Congressional CIA funding bill contained language that would hand out 15 year jail sentences to any CIA interrogator who even lowered the temperature in an interrogation room while grilling a bad guy, let alone water-boarding, etc… This language was removed at the last minute by Republicans. Nevertheless, because of western groups like Amnesty International, the CIA cannot really interrogate bad guys any more. When the CIA cannot easily hand over captured bad guys to the Pak/Egypt/Afghan/Iraq spy agencies for interrogation it simply kills them in the field. We saw this last September when the CIA and Special Forces landed helicopters in Somalia and captured Saleh Ali Nabhan (a top Al-Qaeda leader) and several other big fish. These bad guys were simply killed on the spot. It would have been invaluable to have interrogated them but under the circumstances that would have risked the ire of western human rights organizations.
So once again we are faced with evidence that the Long War will last longer than what voters are expecting. How long will it take to do the following: dismantle America’s toxic alliance with Israel, neuter western human rights groups, and change the structure of democratic Islamist governments? Decades? And with the Turkish stock market crashing we see real world financial implications in these questions.
Sunday, February 28, 2010
Friday, February 26, 2010
Will China Eat Russia's Lunch?
Charts: The S&P 500 closed at 1104, up a fraction. The index’s movements today were bracketed by the 100-day and 50-day moving averages. In fact it closed very close to the midpoint between those two moving averages. Today’s action bolsters my theory that the index is range bound.
Fundamentals: American economic data is weak, from housing to the Q4 GDP revision, it sucks. But today’s Chicago industrial PMI index was good because it is levered to the emerging world. Consumer spending of all emerging market countries combined is about 40% higher than America’s consumer spending. At the beginning of this decade American consumer spending was 3 times higher than total emerging market consumer spending. Recently emerging market stocks haven’t done very well because of the Greek debt problems. This is especially true of emerging market countries with high government debt ratios. But emerging markets without debt problems are starting to move.
Geopolitics: Sometimes geopolitics and economic fundamentals are tightly intertwined. Of all big emerging stock markets, Russia has the lowest valuation by price to book ratio and other measures. Yes, Russian stocks have soared in the past year but they are still relatively cheap because of Russia’s invasion of Georgia, Putin’s blustering talk, and fear of neo-Communist takeover. How dangerous is Russia’s army? Not very. Russia had a tough time conquering 1/3 of teeny-weeny Georgia. Because of that stupid invasion Russia’s Islamic bad guys are a lot worse. Any other foreign adventures and Islamic separatists will tear the Caucus region to shreds and send terrorists into Moscow. Russian expansionists are also being knocked back on their heels by Obama’s foreign policy. The US President says he wants to “reset” relations and act nice; but in reality he is encircling Russia with missile interceptors. As foolish dreams of recreating the USSR fade, the reality of China’s colossal military strength is taking center stage. Another realization is dawning: America does not have an old fashioned colonial empire; it has a global military empire. And joining this empire guarantees that China will not eat your lunch. Some day Russia will join NATO.
Russia’s economy is strong. It has no external debt, high savings rates, and good growth. The Russian stock market moves in synch with the price of oil, which is okay since oil is going up.
Specific Stocks: RSX is the ticker symbol for the Russian index. It is mostly materials companies.
Fundamentals: American economic data is weak, from housing to the Q4 GDP revision, it sucks. But today’s Chicago industrial PMI index was good because it is levered to the emerging world. Consumer spending of all emerging market countries combined is about 40% higher than America’s consumer spending. At the beginning of this decade American consumer spending was 3 times higher than total emerging market consumer spending. Recently emerging market stocks haven’t done very well because of the Greek debt problems. This is especially true of emerging market countries with high government debt ratios. But emerging markets without debt problems are starting to move.
Geopolitics: Sometimes geopolitics and economic fundamentals are tightly intertwined. Of all big emerging stock markets, Russia has the lowest valuation by price to book ratio and other measures. Yes, Russian stocks have soared in the past year but they are still relatively cheap because of Russia’s invasion of Georgia, Putin’s blustering talk, and fear of neo-Communist takeover. How dangerous is Russia’s army? Not very. Russia had a tough time conquering 1/3 of teeny-weeny Georgia. Because of that stupid invasion Russia’s Islamic bad guys are a lot worse. Any other foreign adventures and Islamic separatists will tear the Caucus region to shreds and send terrorists into Moscow. Russian expansionists are also being knocked back on their heels by Obama’s foreign policy. The US President says he wants to “reset” relations and act nice; but in reality he is encircling Russia with missile interceptors. As foolish dreams of recreating the USSR fade, the reality of China’s colossal military strength is taking center stage. Another realization is dawning: America does not have an old fashioned colonial empire; it has a global military empire. And joining this empire guarantees that China will not eat your lunch. Some day Russia will join NATO.
Russia’s economy is strong. It has no external debt, high savings rates, and good growth. The Russian stock market moves in synch with the price of oil, which is okay since oil is going up.
Specific Stocks: RSX is the ticker symbol for the Russian index. It is mostly materials companies.
Thursday, February 25, 2010
The 270 Year War
Charts: The S&P 500 closed at 1103, down .2%. The Shanghai index is below its 200-day moving average, a sign that a bear market is brewing in the world’s primary engine for growth. All the BRIC country indexes are below their respective 100-day lines. Debate among the chartists is over: global stock markets are in a correction. But the S&P 500 is finding support at its 100-day line and resistance at its 50-day line. It is 0.2% above the October high. This could be interpreted as consolidation, creating a stock pickers market. I will give you stocks I have been buying at the end of the newsletter.
Fundamentals: The big rating agencies are downgrading Greek banks and threatening to do a lot worse. Greek public sector unions are clashing with riot police in the streets of Athens, blood is literally flowing. The rating agencies say if these strikes gain traction and derail government spending cuts, then Greek bonds will face radical downgrades, which will trigger a return of the Great Recession. Greece was supposed to float a big bond issue today, but it is delayed to buy time to battle and defeat the unions. The global recovery is dependent on stopping pseudo-Keynesian government stimulus programs like the US Congress’ recent (moronic) jobs bill. Greece is the frontline in a global fiscal war. If bond vigilantes force Greece to slash government spending, they will prevail elsewhere.
Geopolitics: Will the Long War really last for centuries? It is convenient to say the LW started in 1989 with the Iranian hostage crisis. But it really started in the 1920s with the Sudanese Civil War, where Muslim Arabs battled black Christians, resulting in nearly 2 million dead. This war spawned an intellectual movement called the Muslim Brotherhood (MB), which took root in Egypt in the 1920s. Al Qaeda is based on the teachings of the MB. Today the MB is tightly woven into the fabric of Egypt’s political life. It is a political party but cannot legally hold office. If Egypt were a democracy, the MB would take over in a heartbeat. Egypt is the cultural center of the Arab world. The LW cannot end until Egypt’s MB is eliminated. The first steps in doing just that occurred several days ago when the Sudanese government announced a ceasefire deal that might be the beginning of the end of the nearly century old Sudanese Civil War. So progress is being made in central Africa where it all started and because of the CIA this progress will move north, toward Egypt. Between Egypt and Sudan stands Al-Qaeda in the Maghreb (North Africa), Al Shabab, Hizbul Islam, and several other bad guy groups. These groups must all be defeated militarily before cultural changes can take root in Egypt that will eventually neuter the Muslim Brotherhood. But that can only occur if military progress is also made against deeply rooted Islamic separatist movements in Russia, the Philippines, Thailand, etc… So yes indeed, the LW will last for centuries.
And events on the ground are giving this impression to investors. The Battle of Marja has become a long slow grind. The Pak Army is still fighting in the Swat Valley; invading N. Waziristan probably won’t happen for a couple years. America’s top general in Iraq is publicizing a “Plan B” to keep US forces there longer than the President’s withdrawal timetable allows. But we must never forget that Americans are innately a warlike people and they will eventually reconcile themselves to a war that will be over between 2200 and 2400.
Specific Stocks: Cliffs Natural Resources (CLF) is a very good, high tech, iron ore and metallurgical coal miner with a big operation in N. America, a mid-size one in Australia, and a toehold in Brazil. CLF sells iron ore at the long term contract price. The spot price is twice as high as the contract price. The contract system itself is likely to vanish soon. This will double the price CLF receives for its ore.
Fundamentals: The big rating agencies are downgrading Greek banks and threatening to do a lot worse. Greek public sector unions are clashing with riot police in the streets of Athens, blood is literally flowing. The rating agencies say if these strikes gain traction and derail government spending cuts, then Greek bonds will face radical downgrades, which will trigger a return of the Great Recession. Greece was supposed to float a big bond issue today, but it is delayed to buy time to battle and defeat the unions. The global recovery is dependent on stopping pseudo-Keynesian government stimulus programs like the US Congress’ recent (moronic) jobs bill. Greece is the frontline in a global fiscal war. If bond vigilantes force Greece to slash government spending, they will prevail elsewhere.
Geopolitics: Will the Long War really last for centuries? It is convenient to say the LW started in 1989 with the Iranian hostage crisis. But it really started in the 1920s with the Sudanese Civil War, where Muslim Arabs battled black Christians, resulting in nearly 2 million dead. This war spawned an intellectual movement called the Muslim Brotherhood (MB), which took root in Egypt in the 1920s. Al Qaeda is based on the teachings of the MB. Today the MB is tightly woven into the fabric of Egypt’s political life. It is a political party but cannot legally hold office. If Egypt were a democracy, the MB would take over in a heartbeat. Egypt is the cultural center of the Arab world. The LW cannot end until Egypt’s MB is eliminated. The first steps in doing just that occurred several days ago when the Sudanese government announced a ceasefire deal that might be the beginning of the end of the nearly century old Sudanese Civil War. So progress is being made in central Africa where it all started and because of the CIA this progress will move north, toward Egypt. Between Egypt and Sudan stands Al-Qaeda in the Maghreb (North Africa), Al Shabab, Hizbul Islam, and several other bad guy groups. These groups must all be defeated militarily before cultural changes can take root in Egypt that will eventually neuter the Muslim Brotherhood. But that can only occur if military progress is also made against deeply rooted Islamic separatist movements in Russia, the Philippines, Thailand, etc… So yes indeed, the LW will last for centuries.
And events on the ground are giving this impression to investors. The Battle of Marja has become a long slow grind. The Pak Army is still fighting in the Swat Valley; invading N. Waziristan probably won’t happen for a couple years. America’s top general in Iraq is publicizing a “Plan B” to keep US forces there longer than the President’s withdrawal timetable allows. But we must never forget that Americans are innately a warlike people and they will eventually reconcile themselves to a war that will be over between 2200 and 2400.
Specific Stocks: Cliffs Natural Resources (CLF) is a very good, high tech, iron ore and metallurgical coal miner with a big operation in N. America, a mid-size one in Australia, and a toehold in Brazil. CLF sells iron ore at the long term contract price. The spot price is twice as high as the contract price. The contract system itself is likely to vanish soon. This will double the price CLF receives for its ore.
Wednesday, February 24, 2010
Looking For Consolidation
Charts: The S&P 500 closed at 1105, up 1%. Volume patterns are still bearish and the 50-day moving average is still providing resistance. The index is fractionally above its October high. In five months it has gone nowhere. Chartists see things as black or white, rally or correction. Very few want to forecast consolidation. However, consolidation (tight range bound trading) is healthy if volume is light. And we are certainly seeing light volume although a clear trading channel has not evolved because the sideways movement has been loose and sloppy. If it tightens up and looks to stay range bound for a long time, we will have a stock pickers market. In that case we can put some money to work.
Fundamentals: Yesterday’s Case Schiller data was bad without the seasonal adjustment; with the adjustment it was so-so. New home sales data today was very bad. Fed Chairman Bernanke softened the blow by saying interest rates will stay low as far as the eye can see. This week’s treasury auction has been very sloppy so far with yields jumping again on the 10-year. An all time record amount of debt (about $138 billion) has to be shoved out the door to make room for more gigantic auctions. Adding to the debt load, Congress is busy passing a $15 billion jobs bill. But the bill isn’t capped at that amount; it’s an open ended commitment to subsidize all new hires that have been out of work for a certain length of time. The real price tag will be closer to $30 billion (it’s only Monopoly money, right?). Goldman Sachs estimates Taiwan’s Q4 GDP grew at a superb 18% (annualized). Emerging Asia is our best friend, next to the CIA, USMC, and gridlock.
Geopolitics: A NATO spokesman said the alliance is facing a shortfall of 1600 trainers in Afghanistan as an alliance conference wound up today bearing very little fruit. The repercussions of Holland pulling its army out of the war are beginning to be felt. Def. Sec. Gates is trying to get the European countries still committed to Afghanistan to essentially send only trainers and scale back any other type of troops. He’s scrambling to fill a hole with help from Europe as the White House gives him the cold shoulder. Thursday is Obama’s big healthcare media event so he’s busy.
Fundamentals: Yesterday’s Case Schiller data was bad without the seasonal adjustment; with the adjustment it was so-so. New home sales data today was very bad. Fed Chairman Bernanke softened the blow by saying interest rates will stay low as far as the eye can see. This week’s treasury auction has been very sloppy so far with yields jumping again on the 10-year. An all time record amount of debt (about $138 billion) has to be shoved out the door to make room for more gigantic auctions. Adding to the debt load, Congress is busy passing a $15 billion jobs bill. But the bill isn’t capped at that amount; it’s an open ended commitment to subsidize all new hires that have been out of work for a certain length of time. The real price tag will be closer to $30 billion (it’s only Monopoly money, right?). Goldman Sachs estimates Taiwan’s Q4 GDP grew at a superb 18% (annualized). Emerging Asia is our best friend, next to the CIA, USMC, and gridlock.
Geopolitics: A NATO spokesman said the alliance is facing a shortfall of 1600 trainers in Afghanistan as an alliance conference wound up today bearing very little fruit. The repercussions of Holland pulling its army out of the war are beginning to be felt. Def. Sec. Gates is trying to get the European countries still committed to Afghanistan to essentially send only trainers and scale back any other type of troops. He’s scrambling to fill a hole with help from Europe as the White House gives him the cold shoulder. Thursday is Obama’s big healthcare media event so he’s busy.
Tuesday, February 23, 2010
Sufis Are More Fun
Charts: The S&P 500 closed at 1095, down 1.2%. All 3 major indexes are below their 50-day moving averages. Today’s chart action supports the view that the recent rally has been a counter-cyclical pop within an ongoing correction. The bullish argument is that small caps are outperforming large caps and American stocks are outperforming the world index, so leadership is okay.
Fundamentals: Today’s sell-off was caused by a plunge in February consumer confidence. Joe Sixpack is feeling gloomy because the stock market has weakened as have home prices as measured by the most recent Case/Schiller numbers. It is problematic that Wall Street has been leading Main Street in this recovery, rather than the other way around. There is danger of a vicious cycle where the market falls, which hurts consumer confidence, which causes the market to fall, etc…
Geopolitics: Resistance is very stiff in Marja. Nevertheless, the Pentagon says in 30 days the battle will be over and preparations will begin for the Battle of Kandahar this summer. Kandahar is much bigger than Marja and presents bigger challenges. The Taliban had complete control of Marja but only controls parts of Kandahar, avoiding civilian casualties will be even more difficult. And avoiding civilian casualties is proving nearly impossible in Marja. Every civilian death ignites a firestorm of media attention. The rules of engagement for the current battle are the tightest ever. The Taliban is using this to its advantage; virtually every bad guy movement or action is done with human shields. The more Afghani soldiers doing the shooting, the less political damage there will be from civilian casualties. So a massive effort must be made to get the Afghan Army up to snuff before the Battle of Kandahar. Amazingly, the Pentagon is severely underfunded in its Afghan training program. Obama is still screwing around with healthcare reform rather than addressing this shortfall. He is a super-hawk only when he focuses.
The Somali Army has landed troops in several Al-Shabab controlled villages in central Somalia and opened an offensive. The good guys are reported to have arrived on rivers by boat. Al Shabab admitted that several attacks occurred and claimed it has already beaten the government troops and there is nothing left but mopping up. The bad guys are prone to exaggeration.
While fighting is occurring in the boonies, politics is occurring in Mogadishu. Ahlu Sunnah is acquiring formal authority within the Somali government, welding it into the good guy camp. Ahlu Sunnah is the most powerful good bad guy Islamic militia in Somalia, controls much of central Somalia, and is certainly involved in the freshly launched offensive. The CIA equips, trains, funds, and parties with Ahlu Sunnah. Its members are Sufis and share theological beliefs with the rulers of Sudan. This is why I think the recently announced peace deal in Sudan has CIA fingerprints on it. Al-Qaeda and the Taliban especially hate Sufi Muslims and vice versa. Harnessing Sufis for the good guy cause is a promising development. Of the major branches of Islam, the Sufis are the most fun, and terrific warriors to boot.
Fundamentals: Today’s sell-off was caused by a plunge in February consumer confidence. Joe Sixpack is feeling gloomy because the stock market has weakened as have home prices as measured by the most recent Case/Schiller numbers. It is problematic that Wall Street has been leading Main Street in this recovery, rather than the other way around. There is danger of a vicious cycle where the market falls, which hurts consumer confidence, which causes the market to fall, etc…
Geopolitics: Resistance is very stiff in Marja. Nevertheless, the Pentagon says in 30 days the battle will be over and preparations will begin for the Battle of Kandahar this summer. Kandahar is much bigger than Marja and presents bigger challenges. The Taliban had complete control of Marja but only controls parts of Kandahar, avoiding civilian casualties will be even more difficult. And avoiding civilian casualties is proving nearly impossible in Marja. Every civilian death ignites a firestorm of media attention. The rules of engagement for the current battle are the tightest ever. The Taliban is using this to its advantage; virtually every bad guy movement or action is done with human shields. The more Afghani soldiers doing the shooting, the less political damage there will be from civilian casualties. So a massive effort must be made to get the Afghan Army up to snuff before the Battle of Kandahar. Amazingly, the Pentagon is severely underfunded in its Afghan training program. Obama is still screwing around with healthcare reform rather than addressing this shortfall. He is a super-hawk only when he focuses.
The Somali Army has landed troops in several Al-Shabab controlled villages in central Somalia and opened an offensive. The good guys are reported to have arrived on rivers by boat. Al Shabab admitted that several attacks occurred and claimed it has already beaten the government troops and there is nothing left but mopping up. The bad guys are prone to exaggeration.
While fighting is occurring in the boonies, politics is occurring in Mogadishu. Ahlu Sunnah is acquiring formal authority within the Somali government, welding it into the good guy camp. Ahlu Sunnah is the most powerful good bad guy Islamic militia in Somalia, controls much of central Somalia, and is certainly involved in the freshly launched offensive. The CIA equips, trains, funds, and parties with Ahlu Sunnah. Its members are Sufis and share theological beliefs with the rulers of Sudan. This is why I think the recently announced peace deal in Sudan has CIA fingerprints on it. Al-Qaeda and the Taliban especially hate Sufi Muslims and vice versa. Harnessing Sufis for the good guy cause is a promising development. Of the major branches of Islam, the Sufis are the most fun, and terrific warriors to boot.
Sunday, February 21, 2010
Dutch Army Withdraws. Fund Managers Unhappy.
Geopolitics: The 2010 Battle of Marja in Afghanistan probably represents the turning point in the Afghan war, just like the 2007 Third Battle of Fallujah in the Iraq war. Wars almost always pivot on key battles. Consider Stalingrad in WW II and Gettysburg in the Civil War. Of course Fallujah is the closest parallel to Marja.
The Iraqi Army played a minor role in Fallujah. It wasn’t ready to do any heavy lifting; the USMC did nearly all the fighting. However in 2008 the Iraqi Army was much stronger and it won the Battle of Basra pretty much by itself. Halfway through the Battle of Basra it was nip and tuck for the Iraqi Army. At one point it almost got clobbered by the Mahdi Army and needed a little help from the superpower. Just enough help, but no more, was given to the struggling Iraqi Army. Fallujah battle hardened the Iraqi Army and it is now a bad guy wrecking machine. In time this will happen to the Afghani Army. That is, if it is given time by ignorant leftwing Western voters.
The Sunday New York Times ran two stories saying that the Afghan Army is not doing the heavy lifting in Marja and is nowhere near ready to take over the war. This realization occurred to liberal politicians in Holland’s Parliament this weekend and the Dutch government collapsed Sunday over the issue of keeping troops in Afghanistan. The new Dutch government will certainly start withdrawing the Dutch Army from Afghanistan. It has 2000 troops in country and (unlike Germany and France) Dutch soldiers have been in the thick of savage combat from the beginning. So losing 2000 Dutch soldiers is like losing 2000 American or British soldiers.
The loss of good soldiers is not the primary danger represented by the Dutch withdrawal. The withdrawal shows how voters/politicians in Western democracies expect that the Afghan War will soon be over and are shocked to learn otherwise. It will not soon be over and when it is a new Islamic war will quickly spring up to replace it. When Western voters finally realize all this they might demand that the good guys stop fighting. The Dutch withdrawal might spark French and German withdrawals, which might spark a British withdrawal, and then even America will feel pressure from its left wing to withdraw. I don’t think all this will happen, but it is a possibility.
Most Western voters are woefully ignorant of the global conflict. In fact most would ask, “What global conflict?” Your local newspaper never uses the term Long War. The taking heads on the TV news tonight will report that the government of Sudan has agreed to a promising but tenuous peace deal with its southern rebels. The brain-dead talking heads will not explain that the Sudanese Civil War has been going on for decades, has killed nearly 2 million people and is a dangerous component of the Long War. They also won’t explain that the spiritual philosophy that guides the government of Sudan is a deadly bridge linking the Wahhabism of Osama bin Laden to the Sufi mysticism of good bad guy militias painstakingly nurtured by the CIA in central Somalia. Nor will they explain that as the locus of the Long War moves down into Africa the importance of Sudan is magnified. They sure as heck won’t speculate that the CIA might be pulling strings to get this fragile peace deal off the ground. No, none of these insights will be shared on the evening news. So voters remain ignorant.
But here’s a group of folks not woefully ignorant of geopolitics: Hedge Fund Managers. And since today’s bull market has little participation by retail investors it is important that Hedge Fund Managers remain happy. They are not happy when NATO armies withdraw from Afghanistan and Mullah Omar crows in delight.
The Iraqi Army played a minor role in Fallujah. It wasn’t ready to do any heavy lifting; the USMC did nearly all the fighting. However in 2008 the Iraqi Army was much stronger and it won the Battle of Basra pretty much by itself. Halfway through the Battle of Basra it was nip and tuck for the Iraqi Army. At one point it almost got clobbered by the Mahdi Army and needed a little help from the superpower. Just enough help, but no more, was given to the struggling Iraqi Army. Fallujah battle hardened the Iraqi Army and it is now a bad guy wrecking machine. In time this will happen to the Afghani Army. That is, if it is given time by ignorant leftwing Western voters.
The Sunday New York Times ran two stories saying that the Afghan Army is not doing the heavy lifting in Marja and is nowhere near ready to take over the war. This realization occurred to liberal politicians in Holland’s Parliament this weekend and the Dutch government collapsed Sunday over the issue of keeping troops in Afghanistan. The new Dutch government will certainly start withdrawing the Dutch Army from Afghanistan. It has 2000 troops in country and (unlike Germany and France) Dutch soldiers have been in the thick of savage combat from the beginning. So losing 2000 Dutch soldiers is like losing 2000 American or British soldiers.
The loss of good soldiers is not the primary danger represented by the Dutch withdrawal. The withdrawal shows how voters/politicians in Western democracies expect that the Afghan War will soon be over and are shocked to learn otherwise. It will not soon be over and when it is a new Islamic war will quickly spring up to replace it. When Western voters finally realize all this they might demand that the good guys stop fighting. The Dutch withdrawal might spark French and German withdrawals, which might spark a British withdrawal, and then even America will feel pressure from its left wing to withdraw. I don’t think all this will happen, but it is a possibility.
Most Western voters are woefully ignorant of the global conflict. In fact most would ask, “What global conflict?” Your local newspaper never uses the term Long War. The taking heads on the TV news tonight will report that the government of Sudan has agreed to a promising but tenuous peace deal with its southern rebels. The brain-dead talking heads will not explain that the Sudanese Civil War has been going on for decades, has killed nearly 2 million people and is a dangerous component of the Long War. They also won’t explain that the spiritual philosophy that guides the government of Sudan is a deadly bridge linking the Wahhabism of Osama bin Laden to the Sufi mysticism of good bad guy militias painstakingly nurtured by the CIA in central Somalia. Nor will they explain that as the locus of the Long War moves down into Africa the importance of Sudan is magnified. They sure as heck won’t speculate that the CIA might be pulling strings to get this fragile peace deal off the ground. No, none of these insights will be shared on the evening news. So voters remain ignorant.
But here’s a group of folks not woefully ignorant of geopolitics: Hedge Fund Managers. And since today’s bull market has little participation by retail investors it is important that Hedge Fund Managers remain happy. They are not happy when NATO armies withdraw from Afghanistan and Mullah Omar crows in delight.
Friday, February 19, 2010
Karzai Calls The Shots
Charts: The S&P 500 closed at 1109, up .2%. The index is above both the 100-day and 50-day moving averages which is bullish. Over 50% of the correction has been retraced so we are definitely in some kind of rally. About half the chartists are calling this a counter-cyclical rally within an ongoing correction because volume continues to be horrible. Volume is bad because investors understand that any default on sovereign debt would be catastrophic. I’m sticking with my assessment that we are in a shaky rally.
Fundamentals: Yesterday wholesale inflation came in hot, so the Fed raised the interest rate on the discount window. Banks are no longer using the discount window so this is a symbolic move. Symbolic or not it terrified the Asian markets overnight, which crashed. Today consumer inflation came in cooler than expected and this calmed everybody down. Interest rates cannot stay this low forever or even much longer. Consider: 90% of the world’s aluminum stockpiles are owned by hedge funds that gobble up the metal in the spot market with ultra-cheap borrowed money and dole it out to industrial companies over time for an arbitrage profit, causing a dangerous price bubble in the aluminum market. Another example, Chinese and Canadian real estate markets are screeching upward, entering bubble territory. Interest rates need to go up to prevent more bubbles from forming but raising them will cause the carrying costs of massive government debts to sky rocket. We’re between a rock and a hard spot. Stock markets think the Tea Party movement will get deficit hawks elected in the November US elections and then spending will get slashed. If this doesn’t happen we are in big trouble.
Geopolitics: In N. Waziristan, Pakistan, a CIA drone blew away a van and incinerated a Taliban compound yesterday; both belonged to the Haqqani network. So far in 2010 CIA drones have made 17 strikes in Pakistan and killed over 200 of bad guys.
In Afghanistan, the Battle for Marja is growing more deadly for NATO as the good guys attack fortified bad guy positions. Five NATO soldiers died yesterday. I’m putting the bad guy death toll at roughly 170.
I was wrong when I said Gen. McChrystal will become the Emir of Helmand Province. McChrystal is actually letting Pres. Karzai call the shots. Some counterinsurgency experts are criticizing this strategy because Karzai is such a worm. But McChrystal is letting Karzai run the country and to some degree the war. For instance, Karzai is in charge of the efforts to turn the various tribes into anti-Taliban militias and reportedly he isn’t doing that great of a job. McChrystal is nursing Karzai along, trying to turn him into a real leader, like a drill instructor working with a soft recruit. If anybody can do it, McChrystal can (I hope).
Fundamentals: Yesterday wholesale inflation came in hot, so the Fed raised the interest rate on the discount window. Banks are no longer using the discount window so this is a symbolic move. Symbolic or not it terrified the Asian markets overnight, which crashed. Today consumer inflation came in cooler than expected and this calmed everybody down. Interest rates cannot stay this low forever or even much longer. Consider: 90% of the world’s aluminum stockpiles are owned by hedge funds that gobble up the metal in the spot market with ultra-cheap borrowed money and dole it out to industrial companies over time for an arbitrage profit, causing a dangerous price bubble in the aluminum market. Another example, Chinese and Canadian real estate markets are screeching upward, entering bubble territory. Interest rates need to go up to prevent more bubbles from forming but raising them will cause the carrying costs of massive government debts to sky rocket. We’re between a rock and a hard spot. Stock markets think the Tea Party movement will get deficit hawks elected in the November US elections and then spending will get slashed. If this doesn’t happen we are in big trouble.
Geopolitics: In N. Waziristan, Pakistan, a CIA drone blew away a van and incinerated a Taliban compound yesterday; both belonged to the Haqqani network. So far in 2010 CIA drones have made 17 strikes in Pakistan and killed over 200 of bad guys.
In Afghanistan, the Battle for Marja is growing more deadly for NATO as the good guys attack fortified bad guy positions. Five NATO soldiers died yesterday. I’m putting the bad guy death toll at roughly 170.
I was wrong when I said Gen. McChrystal will become the Emir of Helmand Province. McChrystal is actually letting Pres. Karzai call the shots. Some counterinsurgency experts are criticizing this strategy because Karzai is such a worm. But McChrystal is letting Karzai run the country and to some degree the war. For instance, Karzai is in charge of the efforts to turn the various tribes into anti-Taliban militias and reportedly he isn’t doing that great of a job. McChrystal is nursing Karzai along, trying to turn him into a real leader, like a drill instructor working with a soft recruit. If anybody can do it, McChrystal can (I hope).
Thursday, February 18, 2010
Super-Hawk Obama
Charts: The S&P 500 closed at 1107, up .66%. This is day 3 above the 100-day moving average. One more day and long term technical damage is mostly repaired. The 50-day moving average is 1108. The index hit the 50-day line, found resistance, and bounced down. It will be good if it struggles for a long time with the 50-day line and then eventually wins. Volume continues to be terrible, so the rally is shaky. Yield on the 10-year note is screeching up (not good).
Fundamentals: Inflation data came in today hotter than expected, bad for bonds but good for material stocks. I have been rotating out of bonds and into two material stocks: DuPont (DD) and Cree (CREE). Let’s start with DD. America produces nat. gas cheaper than anybody. DD is levered to cheap US nat. gas (as a chemical feedstock), global agriculture, and industrial activity. DD is the world’s leader in titanium dioxide (used in paint); yesterday it raised the price of titanium dioxide. With nearly a 5% dividend, DD can replace bonds in your portfolio. CREE is the leader in LED lighting and it is opening a huge LED factory in China soon. In time every incandescent and florescent light bulb on the planet will be replaced with LED chips, a growth story of epic proportion. CREE is the leader in producing and finding applications for Gallium Nitride and Silicon Carbide. This levers it to a host of growth industries such as hybrid vehicles, solar power, and military applications relevant to the Long War.
Geopolitics: In Pakistan, last week the ISI and CIA captured the two most powerful Afghan Taliban “shadow governors,” or bad guy leaders that run Taliban governments within Afghanistan. Adding to the bad guys’ pain, last night the ISI/CIA captured 9 top Al-Qaeda operatives in Karachi. All these bad guys are being interrogated by the ISI (go long on cattle prods). Ever since the CIA agreed to give the ISI its own drone fleet, the two spy agencies have become so closely entwined they are virtually a single entity. Rubbing salt in the wounds, a senior NATO officer told the New York Times that Special Forces soldiers have killed “three or four” other Afghan Taliban shadow governors in the last few weeks.
The UN is criticizing an American policy that prevents food aid from reaching hungry people in Somalia. Aid workers end up giving much of the food to Al-Shabab, a bribe that allows them to give the rest to civilians. The US won’t put up with Al-Shabab getting a single crumb, even if some innocents go hungry. We are forced once again to quote General Sherman of Civil War fame, “War is cruelty. There is no use trying to reform it. The crueler it is, the sooner it will be over.” Super-hawk Barak Obama may lose his Nobel Peace Prize, but he will never lose a single battle in the Long War.
Fundamentals: Inflation data came in today hotter than expected, bad for bonds but good for material stocks. I have been rotating out of bonds and into two material stocks: DuPont (DD) and Cree (CREE). Let’s start with DD. America produces nat. gas cheaper than anybody. DD is levered to cheap US nat. gas (as a chemical feedstock), global agriculture, and industrial activity. DD is the world’s leader in titanium dioxide (used in paint); yesterday it raised the price of titanium dioxide. With nearly a 5% dividend, DD can replace bonds in your portfolio. CREE is the leader in LED lighting and it is opening a huge LED factory in China soon. In time every incandescent and florescent light bulb on the planet will be replaced with LED chips, a growth story of epic proportion. CREE is the leader in producing and finding applications for Gallium Nitride and Silicon Carbide. This levers it to a host of growth industries such as hybrid vehicles, solar power, and military applications relevant to the Long War.
Geopolitics: In Pakistan, last week the ISI and CIA captured the two most powerful Afghan Taliban “shadow governors,” or bad guy leaders that run Taliban governments within Afghanistan. Adding to the bad guys’ pain, last night the ISI/CIA captured 9 top Al-Qaeda operatives in Karachi. All these bad guys are being interrogated by the ISI (go long on cattle prods). Ever since the CIA agreed to give the ISI its own drone fleet, the two spy agencies have become so closely entwined they are virtually a single entity. Rubbing salt in the wounds, a senior NATO officer told the New York Times that Special Forces soldiers have killed “three or four” other Afghan Taliban shadow governors in the last few weeks.
The UN is criticizing an American policy that prevents food aid from reaching hungry people in Somalia. Aid workers end up giving much of the food to Al-Shabab, a bribe that allows them to give the rest to civilians. The US won’t put up with Al-Shabab getting a single crumb, even if some innocents go hungry. We are forced once again to quote General Sherman of Civil War fame, “War is cruelty. There is no use trying to reform it. The crueler it is, the sooner it will be over.” Super-hawk Barak Obama may lose his Nobel Peace Prize, but he will never lose a single battle in the Long War.
Wednesday, February 17, 2010
US Employs Global Strategy For 1st Time
Charts: The S&P 500 closed at 1100, up .42%. This is the second day the index has traded above the 100-day moving average, further technical evidence that the recent correction was a garden variety one. Chartists will want to see at least 4 days above the 100 day line before blowing the all clear whistle. There is a very worrisome inverse dynamic between Greek debt yields ebbing and rising yield on the US ten-year note. As the bond vigilantes stop attacking Greek debt, they start attacking American debt.
Fundamentals: Over 70 years ago John Maynard Keynes proposed a quite valid theory that said the business cycle could be smoothed out if governments ran big surpluses in boom times and deficits in downturns. America and most major economies are not practicing Keynesian policies with today’s stimulus programs because they run big deficits in boom times and bigger deficits in downturns. The effect of this pseudo-Keynesianism is best understood by another economic theory called Ricardian Equivalence (RE), which says that for every dollar of stimulus spent by a heavily indebted government the private sector will hold back a dollar as savings for future tax increases. Empirical data shows that RE is completely valid once debt loads reach a certain level and the trillions of dollars of government stimulus during the Great Recession has been hurting the world recovery. But there is huge political pressure to cut government spending; which we are seeing in Greece and elsewhere. What this all means is that the recovery will grow stronger if government spending is cut.
Geopolitics: 1100 elite Afghan paramilitary police are being deployed in Marja and other key towns in Helmand Province. The deployment is coming one month ahead of schedule. Several hundred more paramilitary cops are in the wings, ready to go. NATO and Afghan soldiers have seized most of their targeted positions in Marja and are moving to link these positions together into a seamless web that will engulf the entire region, placing it under control of the good guys.
Reports of Karzai’s government negotiating peace deals with various Taliban factions are coming with greater frequency. One such meeting was supposed to have occurred recently on the Maldives Islands. It is certainly true that some bad guys will negotiate in bad faith, play possum, and strike back at the good guys at a later date. Nevertheless, all this talk of bad guys surrendering is good news.
In Mogadishu, Somali Army and African Union troops continue to mass against Al Shabab. This will be the biggest and best organized offensive against the bad guys yet, a hopeful sign.
In Yemen, the Houthi rebels have left all their positions that were arrayed against the Saudi Army in the north of the country.
It is impressive that the US has been able to coordinate the action in Yemen and Somalia with the Battle for Marja, the first instance of a global US strategy in 31 years of fighting the Long War. On the other hand, this shows how the sluggish superpower is just beginning to respond as if it there is a global conflict. A long road stretches ahead. Centuries of road, in fact.
Fundamentals: Over 70 years ago John Maynard Keynes proposed a quite valid theory that said the business cycle could be smoothed out if governments ran big surpluses in boom times and deficits in downturns. America and most major economies are not practicing Keynesian policies with today’s stimulus programs because they run big deficits in boom times and bigger deficits in downturns. The effect of this pseudo-Keynesianism is best understood by another economic theory called Ricardian Equivalence (RE), which says that for every dollar of stimulus spent by a heavily indebted government the private sector will hold back a dollar as savings for future tax increases. Empirical data shows that RE is completely valid once debt loads reach a certain level and the trillions of dollars of government stimulus during the Great Recession has been hurting the world recovery. But there is huge political pressure to cut government spending; which we are seeing in Greece and elsewhere. What this all means is that the recovery will grow stronger if government spending is cut.
Geopolitics: 1100 elite Afghan paramilitary police are being deployed in Marja and other key towns in Helmand Province. The deployment is coming one month ahead of schedule. Several hundred more paramilitary cops are in the wings, ready to go. NATO and Afghan soldiers have seized most of their targeted positions in Marja and are moving to link these positions together into a seamless web that will engulf the entire region, placing it under control of the good guys.
Reports of Karzai’s government negotiating peace deals with various Taliban factions are coming with greater frequency. One such meeting was supposed to have occurred recently on the Maldives Islands. It is certainly true that some bad guys will negotiate in bad faith, play possum, and strike back at the good guys at a later date. Nevertheless, all this talk of bad guys surrendering is good news.
In Mogadishu, Somali Army and African Union troops continue to mass against Al Shabab. This will be the biggest and best organized offensive against the bad guys yet, a hopeful sign.
In Yemen, the Houthi rebels have left all their positions that were arrayed against the Saudi Army in the north of the country.
It is impressive that the US has been able to coordinate the action in Yemen and Somalia with the Battle for Marja, the first instance of a global US strategy in 31 years of fighting the Long War. On the other hand, this shows how the sluggish superpower is just beginning to respond as if it there is a global conflict. A long road stretches ahead. Centuries of road, in fact.
Tuesday, February 16, 2010
Millions of $ Or Torn Toenails? You Decide!
Charts: The S&P 500 closed at 1095, up 1.8%. The index pushed above the 100-day moving average which right now is 1091. If it trades above the 100-day line for several days, then the charts are saying the correction was a garden variety one, the fledgling rally will continue, and a new bear market is not imminent.
Fundamentals: The EU has clarified its bailout plans for Greece. The still evolving plan is a form of tough love: heavy on the tough, light on the love. The stock market would like to see all love. The bond market likes the tough. Since the bond market is leading the stock market right now, tough is good. Today’s rally was a gift from the EU and the USMC (see below).
Geopolitics: Gen. McChrystal is a genius. On the second day of the Battle for Marja 12 civilians were killed by a ground based rocket barrage. McChrystal ordered a halt to this kind of rocket fire and a thorough investigation. Dead Taliban fighters were mixed in with dead civilians. Restriction on rocket fire was lifted. Even the gum-flapping human rights organizations are knocked back by the General’s rigid honesty concerning civilian casualties. He is controlling the Western press. And the citizens of Marja trust the general to keep civilian casualties to a minimum without giving the bad guys a break. When the Taliban blatantly use human shields, the Marines still blow them away, but as carefully as possible. Long story short: the Marines are winning the Battle for Marja and McChrystal will soon open his government-in-a-box. He will then become the Emir of Helmand Province.
The CIA and the ISI have captured the number two leader of the Afghan Taliban, Mullah Baradar. The ISI interrogated this super-bad guy with the CIA observing. The ISI does not have restrictions against water-boarding or tearing off toenails or using even more brutal techniques. The intelligence being gathered by the ISI from Mullah Baradar is vast. Also, it is now virtually certain that H. Mehsud is dead.
Losing in Marja, having the number two Afghan Taliban leader captured, and the number one Pak Taliban leader killed are three colossal blows one right after the other. The bad guys are indeed feeling the pain. Taliban statements are coming out fast and furious. The statements are bellicose but verging on hysteria: “We are winning in Marja! Our top leader is not captured! He is not singing like a canary! Western media is lying!”
All the big Talibans are screaming except one. Gulbuddin Hekmatyar, the leader of the fourth most powerful Taliban, is in peace talks with the good guys. And why not? Honestly cooperating with the CIA lines your pockets with millions of dollars, plus the ISI doesn’t tear out your toenails: a win/win situation.
Fundamentals: The EU has clarified its bailout plans for Greece. The still evolving plan is a form of tough love: heavy on the tough, light on the love. The stock market would like to see all love. The bond market likes the tough. Since the bond market is leading the stock market right now, tough is good. Today’s rally was a gift from the EU and the USMC (see below).
Geopolitics: Gen. McChrystal is a genius. On the second day of the Battle for Marja 12 civilians were killed by a ground based rocket barrage. McChrystal ordered a halt to this kind of rocket fire and a thorough investigation. Dead Taliban fighters were mixed in with dead civilians. Restriction on rocket fire was lifted. Even the gum-flapping human rights organizations are knocked back by the General’s rigid honesty concerning civilian casualties. He is controlling the Western press. And the citizens of Marja trust the general to keep civilian casualties to a minimum without giving the bad guys a break. When the Taliban blatantly use human shields, the Marines still blow them away, but as carefully as possible. Long story short: the Marines are winning the Battle for Marja and McChrystal will soon open his government-in-a-box. He will then become the Emir of Helmand Province.
The CIA and the ISI have captured the number two leader of the Afghan Taliban, Mullah Baradar. The ISI interrogated this super-bad guy with the CIA observing. The ISI does not have restrictions against water-boarding or tearing off toenails or using even more brutal techniques. The intelligence being gathered by the ISI from Mullah Baradar is vast. Also, it is now virtually certain that H. Mehsud is dead.
Losing in Marja, having the number two Afghan Taliban leader captured, and the number one Pak Taliban leader killed are three colossal blows one right after the other. The bad guys are indeed feeling the pain. Taliban statements are coming out fast and furious. The statements are bellicose but verging on hysteria: “We are winning in Marja! Our top leader is not captured! He is not singing like a canary! Western media is lying!”
All the big Talibans are screaming except one. Gulbuddin Hekmatyar, the leader of the fourth most powerful Taliban, is in peace talks with the good guys. And why not? Honestly cooperating with the CIA lines your pockets with millions of dollars, plus the ISI doesn’t tear out your toenails: a win/win situation.
Sunday, February 14, 2010
Uncle Sam Will Get His Wish
Charts: The first half of the bull market saw a gain of about 60%. The second half has seen a gain of less than 2%. Graphic chart patterns no longer resemble the monstrously huge and short-lived bear market bounces of the 1930s. We have almost the exact gains at this point in the current bull as we did at the same point in the 1982 bull. As the ‘82 bull entered its second year earnings and GDP growth ceased moving the stock market, replaced by various credit spreads and interest rate yields as the most important technical indicators. Back then investors only cared that borrowing costs stayed low, nothing else mattered. And so it is today. Stock markets are being led by credit markets, which in turn are being whipsawed by spreads on Greek, Spanish, and Portuguese debt. The credit crisis is still with us. Primary concern has moved from insolvent banks to insolvent countries on the periphery of the Euro-zone. The technical picture is volatile and unpredictable.
Fundamentals: Foreign held Greek debt totals about $300 billion, roughly half as much as the realized losses from Lehman Brother’s collapse. Much of this debt is held by big European banks and insurance companies. Big German banks are also heavily exposed to Credit Default Swaps on Greek debt. This is a déjà vu of Lehman Brothers. The exposed debt of all the other weak countries on the Euro-zone periphery and the handful of weaklings just beyond the periphery (such as Latvia) plus Dubai (its credit spreads are soaring once again) are about ten times greater than the Lehman Brothers losses. If these sovereign weaklings start defaulting in domino fashion (contagion), the global economy will implode.
That’s the bad news. Here’s the good. Greek public opinion polls show overwhelming support for slashing government spending and increasing taxes. Greece has always had a culture of tax evasion. Some Greek taxpayers are now voluntarily paying back taxes. Heavily subsidized Greek farmers and bloated public sector unions are battling mightily to keep the gravy train rolling. The general population hates them and is pushing back. Still, there will literally be blood on the streets of Athens before this is over.
Spain and Portugal are not doing enough fiscal tightening yet to avert disaster but will probably end up doing whatever Greece does. The clock is ticking on a global sovereign debt bomb, a Maalox moment for investors.
Geopolitics: The Battle for Marja has begun. NATO candidly told the Taliban that the battle would start with a huge helicopter airlift of good guys into the town’s center. The bad guys were totally freaked out when this happened exactly as promised. The first few hours saw key road junctures, bridges and the town center seized by air-dropped NATO soldiers. Next, hundred-ton bulldozers carved paths in Marja’s labyrinthine minefields, laid down anti-landmine rocket barrages, and good guys poured into the battle zone. The Marines threw portable steel bridges across canals to avoid bobby-trapped bridges. Reaper and Predator drones circled overhead, firing Hellfire missiles into bad guy positions. Cobra attack helicopters fired more Hellfire missiles. B1 bombers dropped 500-lbs. bombs into larger bad guy positions. Harrier jets stitched the ground with heavy caliber machineguns. The bad guys recovered from their initial shock and are now fighting back fiercely. Causalities are mounting on both sides with a 14-1 kill ratio favoring the good guys (of course).
Gen. McChrystal has an Afghan “government-in-a-box” which will be opened and put in place once the battle is over. In other words, there is a hand-picked cadre of Afghan administrators plus battalions of elite paramilitary Afghan policemen ready to take over and run the Marja region once the NATO task force is removed.
Western media is aggressively reporting every civilian death and human rights organizations are treating these deaths like war crimes, as if they were intentional. So the Taliban’s human shield policy is bearing propaganda fruit for the bad guys. The Marines call Marja “The Heart of Darkness” for good reason. The inevitable loss of Marja’s vast opium production will be a terrible financial blow to the Taliban and will trigger a big Whack-a-mole effect; so we need to pay attention to the other little wars.
In Yemen, the truce between the Houthi rebels and the Yemeni/Saudi Armies is progressing nicely. The Houthi army has released several Saudi soldiers that it had taken prisoner. During the war the Houthis had completely encircled a forward element of the Yemeni Army; that encirclement has been relaxed and the trapped Yemeni soldiers are escaping. A Yemeni helicopter crashed, killing 10 soldiers, but it looks like a technical malfunction, not Houthi fire.
The CIA-led battle against Al Shabab in Somalia is heating up and a fresh battle against AQAP in Yemen is on the horizon. It will take a while for the Whack-a-mole effect (WAM) to funnel bad guys out of Afpak and into Somalia/Yemen. By the time the WAM swings into full gear, the US hopes that the bad guys will be entering a meat grinder, not a comfortable and cozy safe-haven. Looks like Uncle Sam will get his wish.
Fundamentals: Foreign held Greek debt totals about $300 billion, roughly half as much as the realized losses from Lehman Brother’s collapse. Much of this debt is held by big European banks and insurance companies. Big German banks are also heavily exposed to Credit Default Swaps on Greek debt. This is a déjà vu of Lehman Brothers. The exposed debt of all the other weak countries on the Euro-zone periphery and the handful of weaklings just beyond the periphery (such as Latvia) plus Dubai (its credit spreads are soaring once again) are about ten times greater than the Lehman Brothers losses. If these sovereign weaklings start defaulting in domino fashion (contagion), the global economy will implode.
That’s the bad news. Here’s the good. Greek public opinion polls show overwhelming support for slashing government spending and increasing taxes. Greece has always had a culture of tax evasion. Some Greek taxpayers are now voluntarily paying back taxes. Heavily subsidized Greek farmers and bloated public sector unions are battling mightily to keep the gravy train rolling. The general population hates them and is pushing back. Still, there will literally be blood on the streets of Athens before this is over.
Spain and Portugal are not doing enough fiscal tightening yet to avert disaster but will probably end up doing whatever Greece does. The clock is ticking on a global sovereign debt bomb, a Maalox moment for investors.
Geopolitics: The Battle for Marja has begun. NATO candidly told the Taliban that the battle would start with a huge helicopter airlift of good guys into the town’s center. The bad guys were totally freaked out when this happened exactly as promised. The first few hours saw key road junctures, bridges and the town center seized by air-dropped NATO soldiers. Next, hundred-ton bulldozers carved paths in Marja’s labyrinthine minefields, laid down anti-landmine rocket barrages, and good guys poured into the battle zone. The Marines threw portable steel bridges across canals to avoid bobby-trapped bridges. Reaper and Predator drones circled overhead, firing Hellfire missiles into bad guy positions. Cobra attack helicopters fired more Hellfire missiles. B1 bombers dropped 500-lbs. bombs into larger bad guy positions. Harrier jets stitched the ground with heavy caliber machineguns. The bad guys recovered from their initial shock and are now fighting back fiercely. Causalities are mounting on both sides with a 14-1 kill ratio favoring the good guys (of course).
Gen. McChrystal has an Afghan “government-in-a-box” which will be opened and put in place once the battle is over. In other words, there is a hand-picked cadre of Afghan administrators plus battalions of elite paramilitary Afghan policemen ready to take over and run the Marja region once the NATO task force is removed.
Western media is aggressively reporting every civilian death and human rights organizations are treating these deaths like war crimes, as if they were intentional. So the Taliban’s human shield policy is bearing propaganda fruit for the bad guys. The Marines call Marja “The Heart of Darkness” for good reason. The inevitable loss of Marja’s vast opium production will be a terrible financial blow to the Taliban and will trigger a big Whack-a-mole effect; so we need to pay attention to the other little wars.
In Yemen, the truce between the Houthi rebels and the Yemeni/Saudi Armies is progressing nicely. The Houthi army has released several Saudi soldiers that it had taken prisoner. During the war the Houthis had completely encircled a forward element of the Yemeni Army; that encirclement has been relaxed and the trapped Yemeni soldiers are escaping. A Yemeni helicopter crashed, killing 10 soldiers, but it looks like a technical malfunction, not Houthi fire.
The CIA-led battle against Al Shabab in Somalia is heating up and a fresh battle against AQAP in Yemen is on the horizon. It will take a while for the Whack-a-mole effect (WAM) to funnel bad guys out of Afpak and into Somalia/Yemen. By the time the WAM swings into full gear, the US hopes that the bad guys will be entering a meat grinder, not a comfortable and cozy safe-haven. Looks like Uncle Sam will get his wish.
Friday, February 12, 2010
4 Little Wars = 1 Big War
Charts: Today’s newsletter goes out before the market’s close so let’s dwell on long term charts. Wall Street veterans often say, “As goes January so goes the year.” This is only partially true. Following a steep decline in January the most likely outcome for the rest of the year is a flat to slightly down market. And whether we are in a shaky rally or a stabilizing correction (almost the same thing) the charts do speak toward treading water.
Fundamentals: China tightened monetary policy last night. Inflation data from China the day before was benign so this came as a real shock. On the other hand, Chinese auto sales are still screeching upward, defying forecasts of a cool down. China is likely to keep tightening until its economy slows. Every 20th Century recovery was led by America. This is the first recovery led by China, so the effects of its tightening campaign are unpredictable.
Geopolitics: NATO thinks most of the civilians from Marja have made their escape. It is now sealing escape routes and tightening its encirclement of the Taliban fortress city. Marines and soldiers are wading through very muddy terrain, moving closer to the bad guys’ fortified positions. In the 1950s America built an extensive irrigation system crisscrossing the fertile lands around the city, part of an early Cold War nation building program. These canals are a mess and that’s why the ground is nearly impenetrable. There are more landmines around Marja than anywhere else in the world. After the Battle for Marja the US will rebuild these irrigation canals and bolster the region’s economy in other ways. Gen. McChrystal says these nation building efforts are more important than the fighting.
In Somalia, Al Shabab launched a huge mortar attack against the gathering Somali Army and African Union forces in Mogadishu. As in Marja, civilians are streaming out of Mogadishu as a titanic battle looms.
In Yemen, the government has agreed to a peace deal with the Houthi rebels. The fighting is gradually ebbing in the north, not coming to a sudden halt by any means. However, the Houthi/Saudi peace deal is finally taking hold and experts are confident that this second peace deal will also hold. The next step will be a big offensive against AQAP, which will take a while to organize.
This is the big picture: There is more coordination between the four little wars (Afghanistan, Pakistan, Somalia, and Yemen) within the Long War than ever before, a good thing.
Fundamentals: China tightened monetary policy last night. Inflation data from China the day before was benign so this came as a real shock. On the other hand, Chinese auto sales are still screeching upward, defying forecasts of a cool down. China is likely to keep tightening until its economy slows. Every 20th Century recovery was led by America. This is the first recovery led by China, so the effects of its tightening campaign are unpredictable.
Geopolitics: NATO thinks most of the civilians from Marja have made their escape. It is now sealing escape routes and tightening its encirclement of the Taliban fortress city. Marines and soldiers are wading through very muddy terrain, moving closer to the bad guys’ fortified positions. In the 1950s America built an extensive irrigation system crisscrossing the fertile lands around the city, part of an early Cold War nation building program. These canals are a mess and that’s why the ground is nearly impenetrable. There are more landmines around Marja than anywhere else in the world. After the Battle for Marja the US will rebuild these irrigation canals and bolster the region’s economy in other ways. Gen. McChrystal says these nation building efforts are more important than the fighting.
In Somalia, Al Shabab launched a huge mortar attack against the gathering Somali Army and African Union forces in Mogadishu. As in Marja, civilians are streaming out of Mogadishu as a titanic battle looms.
In Yemen, the government has agreed to a peace deal with the Houthi rebels. The fighting is gradually ebbing in the north, not coming to a sudden halt by any means. However, the Houthi/Saudi peace deal is finally taking hold and experts are confident that this second peace deal will also hold. The next step will be a big offensive against AQAP, which will take a while to organize.
This is the big picture: There is more coordination between the four little wars (Afghanistan, Pakistan, Somalia, and Yemen) within the Long War than ever before, a good thing.
Thursday, February 11, 2010
There Is Only The Long War
Charts: The S&P 500 closed at 1078, up 1%. The broad index punched through one resistance level, 1071 and then encountered round number resistance at 1080. Today’s advance comes in low volume so chartists are still divided if the correction is over or not. I’m saying that volume is less important than graphic chart patterns and we are in a shaky sort of rally. Equity volume has to be low to support the government bond market’s insatiable appetite. As Greek bond yields come down US bond yields go up. It’s all very scary.
Fundamentals: The EU says it will not let Greece default on its debt although it is still hammering out bailout details. Weekly US jobless claims unexpectedly improved by 43,000. Maddeningly, the Dept. of Labor said the bad numbers in claims over the past three weeks has been due to it goofing off over the holidays and allowing a work backlog to build, not fundamental weakness in the labor market. After dodging the bullet of Obama-Care the next big fundamental danger is Obama’s proposal to give employers $5000 for almost every new hire, which could cost hundreds of billions. The huge snowstorm engulfing DC may help derail this new deficit threat, perhaps a gift from the stock market Gods.
Geopolitics: Recently the Pak Army has been sending Cobra helicopter gunships into the mountain passes along the Afpak border to stop the flow of bad guys into Afghanistan. Yesterday the bad guys shot down a Cobra, killing 3 high ranking Pak officers and the crew. A bad guy ambush killed 20 more good guys sent in as a rescue team.
The Somali Army has begun shelling Al-Shabab positions in Mogadishu, killing dozens of bad guys as well as civilians. The fighting in other Somali cities appears to be a ruse and the big battle will be in and around Mogadishu. Al Shabab fighters are now pouring into the big city as well as thousands of freshly trained good guys. This is the only Islamic war run by the CIA and if the coming battle goes well it may become a template for other conflicts.
About 3 years ago Canadian forces crushed the Taliban in the city of Marja. The Canadians couldn’t hold the city and gave it back to the bad guys. After that experience the city’s tribal leaders don’t trust NATO to do the right thing and hold the ground it has conquered, even though they hate the Taliban. Today the Afghan government met with the tribal leaders and told them this time it will be different and the greybeards need to cooperate with authorities and get civilians out of Dodge. The Taliban has mined all escape routes from Marja and is telling civilians to stay put.
China has okayed the American aircraft carrier USS Nimitz to make a port call in Hong Kong. This is a sign that China has forgiven America for stuffing billions of dollars worth of weapons into Taiwan and playing footise with the Dalai Lami. More to the point, it is a sign that there is no Cold War between China and America. There is only one global conflict: the Long War.
Fundamentals: The EU says it will not let Greece default on its debt although it is still hammering out bailout details. Weekly US jobless claims unexpectedly improved by 43,000. Maddeningly, the Dept. of Labor said the bad numbers in claims over the past three weeks has been due to it goofing off over the holidays and allowing a work backlog to build, not fundamental weakness in the labor market. After dodging the bullet of Obama-Care the next big fundamental danger is Obama’s proposal to give employers $5000 for almost every new hire, which could cost hundreds of billions. The huge snowstorm engulfing DC may help derail this new deficit threat, perhaps a gift from the stock market Gods.
Geopolitics: Recently the Pak Army has been sending Cobra helicopter gunships into the mountain passes along the Afpak border to stop the flow of bad guys into Afghanistan. Yesterday the bad guys shot down a Cobra, killing 3 high ranking Pak officers and the crew. A bad guy ambush killed 20 more good guys sent in as a rescue team.
The Somali Army has begun shelling Al-Shabab positions in Mogadishu, killing dozens of bad guys as well as civilians. The fighting in other Somali cities appears to be a ruse and the big battle will be in and around Mogadishu. Al Shabab fighters are now pouring into the big city as well as thousands of freshly trained good guys. This is the only Islamic war run by the CIA and if the coming battle goes well it may become a template for other conflicts.
About 3 years ago Canadian forces crushed the Taliban in the city of Marja. The Canadians couldn’t hold the city and gave it back to the bad guys. After that experience the city’s tribal leaders don’t trust NATO to do the right thing and hold the ground it has conquered, even though they hate the Taliban. Today the Afghan government met with the tribal leaders and told them this time it will be different and the greybeards need to cooperate with authorities and get civilians out of Dodge. The Taliban has mined all escape routes from Marja and is telling civilians to stay put.
China has okayed the American aircraft carrier USS Nimitz to make a port call in Hong Kong. This is a sign that China has forgiven America for stuffing billions of dollars worth of weapons into Taiwan and playing footise with the Dalai Lami. More to the point, it is a sign that there is no Cold War between China and America. There is only one global conflict: the Long War.
Wednesday, February 10, 2010
Greece Fears German Conquest
Charts: The S&P 500 closed at 1068, down .2%. The broad index failed to move above resistance at 1071. I have been saying that the charts indicate the correction is over but the technical picture is cloudy enough for different chartists to disagree. The charts reflect the uncertainty of the fundamental outlook.
Fundamentals: The bull market is dependent on an ongoing EU meeting where the Greek bailout is being discussed. If Greece isn’t bailed out, the EU is in danger of unraveling. This would tear the global economy to shreds. The strength of the Euro has allowed Greece to spend like a drunken sailor for years, a binge made possible by Germany’s fiscal prudence and a glaring weakness in the monetary union. Long suffering German voters will be furious when and if a deal materializes. Any bailout will come with strict austerity measures, i.e. Germany telling Greece what to do. The Greek press is filled with angry references to Germany’s WW II conquest of Greece, vitriol that Germany could do without. The entire process must be repeated with Spain and Portugal. The consequences of Germany not bailing out the three drunken sailors is so dire the market is fairly sure it will happen, although not certain.
Today Bernanke outlined how the Fed will tighten monetary policy once the economy is strong enough or if inflation forces its hand regardless of the economy’s strength. This clobbered corporate bonds. If you have big gains in corporate bonds it might be wise to lock in profits.
Geopolitics: After a week long battle the Pak Army has killed 74 Taliban fighters and lost 10 good guys in Bajaur, a mountainous tribal region well north of the Waziristan killing fields. Probably the bad guys have been roaming far afield to find alternate infiltration routes into Afghanistan, desperate to feed reinforcements into Marja before the heavy fighting starts. The Pak Army has stationed large numbers of troops on the Bajaur mountaintops and sealed this part of the border.
The offensive against the Taliban fortress city of Marja is called Operation Moshtarak (Operation Together). Half of the army assembling around Marja consists of British, American, and Canadian troops. The other half consists of Afghan soldiers. Together they probably equal 30,000 troops. Moshtarak will feature the largest helicopter assault in 20 years, an attempt to bypass gigantic minefields. The operation will probably begin in earnest when Gen. McChrystal thinks every Afghan civilian capable of leaving the battle zone has done so. The Taliban is currently seizing civilians and preparing to use them as human shields. Of course its goal is the opposite of McChrystal’s; the bad guys want civilian casualties to be as high as possible. NATO is clamping down on body counts, eager to thwart the sort of tallying that is bread and butter to those of us trying to keep score. However, reports from Afghanistan indicate NATO military hospitals are already overflowing with casualties.
Fundamentals: The bull market is dependent on an ongoing EU meeting where the Greek bailout is being discussed. If Greece isn’t bailed out, the EU is in danger of unraveling. This would tear the global economy to shreds. The strength of the Euro has allowed Greece to spend like a drunken sailor for years, a binge made possible by Germany’s fiscal prudence and a glaring weakness in the monetary union. Long suffering German voters will be furious when and if a deal materializes. Any bailout will come with strict austerity measures, i.e. Germany telling Greece what to do. The Greek press is filled with angry references to Germany’s WW II conquest of Greece, vitriol that Germany could do without. The entire process must be repeated with Spain and Portugal. The consequences of Germany not bailing out the three drunken sailors is so dire the market is fairly sure it will happen, although not certain.
Today Bernanke outlined how the Fed will tighten monetary policy once the economy is strong enough or if inflation forces its hand regardless of the economy’s strength. This clobbered corporate bonds. If you have big gains in corporate bonds it might be wise to lock in profits.
Geopolitics: After a week long battle the Pak Army has killed 74 Taliban fighters and lost 10 good guys in Bajaur, a mountainous tribal region well north of the Waziristan killing fields. Probably the bad guys have been roaming far afield to find alternate infiltration routes into Afghanistan, desperate to feed reinforcements into Marja before the heavy fighting starts. The Pak Army has stationed large numbers of troops on the Bajaur mountaintops and sealed this part of the border.
The offensive against the Taliban fortress city of Marja is called Operation Moshtarak (Operation Together). Half of the army assembling around Marja consists of British, American, and Canadian troops. The other half consists of Afghan soldiers. Together they probably equal 30,000 troops. Moshtarak will feature the largest helicopter assault in 20 years, an attempt to bypass gigantic minefields. The operation will probably begin in earnest when Gen. McChrystal thinks every Afghan civilian capable of leaving the battle zone has done so. The Taliban is currently seizing civilians and preparing to use them as human shields. Of course its goal is the opposite of McChrystal’s; the bad guys want civilian casualties to be as high as possible. NATO is clamping down on body counts, eager to thwart the sort of tallying that is bread and butter to those of us trying to keep score. However, reports from Afghanistan indicate NATO military hospitals are already overflowing with casualties.
Tuesday, February 9, 2010
Storm Clouds Of War
Charts: The S&P 500 closed at 1071, up 1.3%. The downturn Monday did not take out Friday’s low. That combined with today’s upswing reinforces the notion that Friday’s big plunge and positive reversal was indeed capitulation. This speaks to the correction being over. From peak to trough (intraday) the broad index lost only about 9%. That would make the correction pretty mild. We still haven’t had a traditional 10% correction, a cause for concern. 1071 is a resistance level and it is disappointing that this level was not taken out. Above that resistance is at 1085.
Fundamentals: Today’s upswing was fueled by rumors that Germany will bailout Greece and force harsh government spending cuts on the free-spending Mediterraneans. The correction has been largely a result of possible credit defaults on the part of Greece, Spain, and Portugal. The rumors need to be true for a new rally to start. Also, there must be concrete plans for Portugal and Spain.
Geopolitics: 2500 newly trained Somali Army soldiers (good guys) are pouring into Mogadishu. These soldiers have been trained in “secret” camps in Kenya run by the Kenyan Army and the CIA. Everyone is caught by surprise as to the size and quality of this troop influx. Al Shabab has pulled back from exposed positions and is digging in as big battles loom in three Somali cities. Al Shabab is furious at Kenya and declared holy war against the East African state. Kenya has moved troops and armor to the Somali border. Ethiopia has moved its troops into Somalia proper, seizing at least one village, perhaps a launch point for the Somali troops that Ethiopia has been training. The coming Somali Army offensive is probably designed to complement the NATO offensive in Marja Afghanistan and stretch Al-Qaeda resources. The Taliban boasts that Arab fighters have been pouring into Marja to help stop the Marines. The Somali Army says that it is starting to capture Arab fighters (Al-Qaeda types) in Somalia.
On Monday the Yemeni Army says 10 of its soldiers were killed by Houthi snipers but it was unable to retaliate and kill any of the bad guys. The Saudi Army has added artillery fire to its bombing campaign against the Houthis. AQAP benefits from all of this. Yemen is becoming a bit of a weak link in the Long War.
On Monday, in S. Waziristan, Pakistan, 12 Pak Army soldiers were killed and 6 Taliban fighters killed. Even though victory was declared in S. Waziristan a while ago heavy fighting continues. The bad guys are probably trying to keep the pressure up in Pakistan as the Battle for Marja looms, tying down the Pak Army so bad guy reinforcements can be funneled to Marja.
In Afghanistan, NATO and Afghan Army troops are right on the edge of the battleground city of Marja. Five American soldiers have been killed in the last 24-hours as initial skirmishes begin. Heavy US airstrikes are pounding bad guy infiltration routes along the Afpak border, killing dozens of bad guys including a senior leader of the Haqqani network. Al-Qaeda and Taliban fighters are digging in furiously in Marja. Civilians are fleeing the region. The air is heavy as the storm clouds of war coalesce.
Fundamentals: Today’s upswing was fueled by rumors that Germany will bailout Greece and force harsh government spending cuts on the free-spending Mediterraneans. The correction has been largely a result of possible credit defaults on the part of Greece, Spain, and Portugal. The rumors need to be true for a new rally to start. Also, there must be concrete plans for Portugal and Spain.
Geopolitics: 2500 newly trained Somali Army soldiers (good guys) are pouring into Mogadishu. These soldiers have been trained in “secret” camps in Kenya run by the Kenyan Army and the CIA. Everyone is caught by surprise as to the size and quality of this troop influx. Al Shabab has pulled back from exposed positions and is digging in as big battles loom in three Somali cities. Al Shabab is furious at Kenya and declared holy war against the East African state. Kenya has moved troops and armor to the Somali border. Ethiopia has moved its troops into Somalia proper, seizing at least one village, perhaps a launch point for the Somali troops that Ethiopia has been training. The coming Somali Army offensive is probably designed to complement the NATO offensive in Marja Afghanistan and stretch Al-Qaeda resources. The Taliban boasts that Arab fighters have been pouring into Marja to help stop the Marines. The Somali Army says that it is starting to capture Arab fighters (Al-Qaeda types) in Somalia.
On Monday the Yemeni Army says 10 of its soldiers were killed by Houthi snipers but it was unable to retaliate and kill any of the bad guys. The Saudi Army has added artillery fire to its bombing campaign against the Houthis. AQAP benefits from all of this. Yemen is becoming a bit of a weak link in the Long War.
On Monday, in S. Waziristan, Pakistan, 12 Pak Army soldiers were killed and 6 Taliban fighters killed. Even though victory was declared in S. Waziristan a while ago heavy fighting continues. The bad guys are probably trying to keep the pressure up in Pakistan as the Battle for Marja looms, tying down the Pak Army so bad guy reinforcements can be funneled to Marja.
In Afghanistan, NATO and Afghan Army troops are right on the edge of the battleground city of Marja. Five American soldiers have been killed in the last 24-hours as initial skirmishes begin. Heavy US airstrikes are pounding bad guy infiltration routes along the Afpak border, killing dozens of bad guys including a senior leader of the Haqqani network. Al-Qaeda and Taliban fighters are digging in furiously in Marja. Civilians are fleeing the region. The air is heavy as the storm clouds of war coalesce.
Sunday, February 7, 2010
Dave's Newsletter Has A New Name
Geopolitics: US Marines are taking positions around the Afghan town of Marja in the Helmand Valley. This town is the center of Afghanistan’s opium industry and taking it will cripple the bad guys financially. The invasion route is very nasty, thick with landmines. The town center will be even worse. The Battle for Marja will be a pivotal moment in the Afghan war. There is little doubt that the Marines will win a set piece battle like this. The real test will be how well the Afghan Army does. This is what the people of Afghanistan will be focused on. If the good guys can honestly say the Afghan Army kicked ass, then recruitment will skyrocket. The Afghan Army recently increased its base salary, which is now slightly higher than the salary of a Taliban fighter; better food too.
India and Pakistan are getting ready to begin formal peace talks. Informal talks have been ongoing. The new round of talks will be between civilian governments. India would rather hold talks with the Pak Army because it can veto anything the civilian government agrees to. If the Pak Army joins these talks it will be a good sign. Pakistan now has 140,000 troops battling the Taliban and could easily double that number if a peace breakthrough occurred. The US has a hand in all this, of course.
Meanwhile, the fighting in Pakistan continues. Saturday, after a fierce battle that relied heavily on helicopter gunships and jet fighter-bombers, the Pak Army has raised the national flag over the town of Damadola. A majority of the dead bad guys are believed to have been buried alive in collapsed underground bunkers and tunnels. This town was a financial center for the bad guys, a conduit for cash flows from the opium fields of Afghanistan and donations from wealthy (but radical) Arabs. CIA drones hit Damadola four separate times before the Pak Army settled the matter once and for all. Taking out a financial center speaks to greater coordination between America and Pakistan (bullish).
In Yemen, shortly after the Houthi rebels signed a ceasefire with the Saudi Army they agreed to a standing ceasefire offer that Yemen had made a while ago. The government of Yemen said the deal was no longer valid. Over the past few days fighting has flared up again with dozens killed on both sides. The Saudi Air Force is still bombing the Houthi rebels. The US is exerting enormous pressure on the Yemeni government to honor its original peace deal. AQAP is catching a break as the war in northern Yemen heats up; bad news since we know AQAP is plotting a terror strike against the US.
Iran says it is ready to negotiate away part of its nuclear program. The offer cuts into the nuclear enrichment cycle, giving control to foreign governments, and would make it impossible for Iran to produce nuclear weapons; that is if Iran were actually sincere. While making the peaceful offer, Iran test fired a long range missile. Team Obama responded by announcing a plan to extend its missile shield to Turkey and Romania. This is in addition to the missile shield already extended to several Gulf Arab states and the Persian Gulf waterway via Aegis anti-missile destroyers. Last week the Navy ran a simulation of an Iranian missile attack. The Navy’s missile interceptors failed to hit their target. The last 10 simulations were successful however.
Germany and France are failing to live up to their NATO troop commitments in Afghanistan. The big continental European powers simply have no will to fight. And yet we know there is an Al-Qaeda franchise called Al-Qaeda in Britain (AQIB) and Al-Qaeda cells all over Europe. In the North Caucus region of Russia the bad guys are making slow but steady progress. America’s anti-Iranian missile shield in Romania is designed to protect Europe. This is the big picture: Without America the barbarians would storm the gates and tear into the heart of European civilization. This supports the dollar and allows America to issue more debt than would be possible if only economic principles were at play. Indeed, geopolitics is more important than fundamentals and you will notice that the name of the newsletter has been changed. It will now focus more on geopolitics.
India and Pakistan are getting ready to begin formal peace talks. Informal talks have been ongoing. The new round of talks will be between civilian governments. India would rather hold talks with the Pak Army because it can veto anything the civilian government agrees to. If the Pak Army joins these talks it will be a good sign. Pakistan now has 140,000 troops battling the Taliban and could easily double that number if a peace breakthrough occurred. The US has a hand in all this, of course.
Meanwhile, the fighting in Pakistan continues. Saturday, after a fierce battle that relied heavily on helicopter gunships and jet fighter-bombers, the Pak Army has raised the national flag over the town of Damadola. A majority of the dead bad guys are believed to have been buried alive in collapsed underground bunkers and tunnels. This town was a financial center for the bad guys, a conduit for cash flows from the opium fields of Afghanistan and donations from wealthy (but radical) Arabs. CIA drones hit Damadola four separate times before the Pak Army settled the matter once and for all. Taking out a financial center speaks to greater coordination between America and Pakistan (bullish).
In Yemen, shortly after the Houthi rebels signed a ceasefire with the Saudi Army they agreed to a standing ceasefire offer that Yemen had made a while ago. The government of Yemen said the deal was no longer valid. Over the past few days fighting has flared up again with dozens killed on both sides. The Saudi Air Force is still bombing the Houthi rebels. The US is exerting enormous pressure on the Yemeni government to honor its original peace deal. AQAP is catching a break as the war in northern Yemen heats up; bad news since we know AQAP is plotting a terror strike against the US.
Iran says it is ready to negotiate away part of its nuclear program. The offer cuts into the nuclear enrichment cycle, giving control to foreign governments, and would make it impossible for Iran to produce nuclear weapons; that is if Iran were actually sincere. While making the peaceful offer, Iran test fired a long range missile. Team Obama responded by announcing a plan to extend its missile shield to Turkey and Romania. This is in addition to the missile shield already extended to several Gulf Arab states and the Persian Gulf waterway via Aegis anti-missile destroyers. Last week the Navy ran a simulation of an Iranian missile attack. The Navy’s missile interceptors failed to hit their target. The last 10 simulations were successful however.
Germany and France are failing to live up to their NATO troop commitments in Afghanistan. The big continental European powers simply have no will to fight. And yet we know there is an Al-Qaeda franchise called Al-Qaeda in Britain (AQIB) and Al-Qaeda cells all over Europe. In the North Caucus region of Russia the bad guys are making slow but steady progress. America’s anti-Iranian missile shield in Romania is designed to protect Europe. This is the big picture: Without America the barbarians would storm the gates and tear into the heart of European civilization. This supports the dollar and allows America to issue more debt than would be possible if only economic principles were at play. Indeed, geopolitics is more important than fundamentals and you will notice that the name of the newsletter has been changed. It will now focus more on geopolitics.
Friday, February 5, 2010
Capitulation? Hard To Say
Charts: The S&P 500 closed at 1066, up .3%. The market is in a correction. So far the correction has formed what chartists call a “waterfall.” A waterfall can be unpredictable. It leads to “capitulation” where sellers throw in the towel and there is one final plunge and then a V-shaped turnaround. Today looked like capitulation. The problem is that the last time we saw capitulation from a waterfall the VIX (fear gauge) was four times higher.
Fundamentals: . The government's Household Survey said a whopping 541,00 new jobs were created in January. The government's Payroll Survey said 20,000 jobs were lost. The ADP Payroll Survey said 22,000 jobs were lost. Unemployment dropped to 9.9%.
Geopolitics: Gen. McChrystal is telling the Taliban exactly where he will attack once his big offensive starts. The Taliban wishes he wouldn’t do this. It means that civilians will flee the targeted village and leave the good guys a free hand at using air power and heavy weapons. After the battle is over civilians will be promptly paid for the houses destroyed.
Fundamentals: . The government's Household Survey said a whopping 541,00 new jobs were created in January. The government's Payroll Survey said 20,000 jobs were lost. The ADP Payroll Survey said 22,000 jobs were lost. Unemployment dropped to 9.9%.
Geopolitics: Gen. McChrystal is telling the Taliban exactly where he will attack once his big offensive starts. The Taliban wishes he wouldn’t do this. It means that civilians will flee the targeted village and leave the good guys a free hand at using air power and heavy weapons. After the battle is over civilians will be promptly paid for the houses destroyed.
Thursday, February 4, 2010
Chance Of Second Underwear Bomber
Charts: The S&P 500 closed at 1063, down 3.2%. The fledgling rally attempt has failed and the market is once again in a correction. The long term indicator, the 100-day moving average, was savagely violated. The market punched through support levels like Mike Tyson in his prime. The charts paint a grim picture.
Fundamentals: Weekly jobless claims came in worse than expected, which has now happened 3 weeks in a row and the market fears what the government’s big jobs report Friday will say. The great danger is that this spate of soft economic news will give the Demos a green light to pass a third stimulus bill, every step in this direction moves America’s response to the Great Recession closer to what Japan did in the 90s. Japan had 9 different stimulus packages over the “Lost Decade” and each package was less effective than the previous one. Eventually these Japanese stimulus programs created the longest bear market ever in equities and also the longest bull market ever for government debt.
Geopolitics: The FBI is doing a terrific job interrogating the Christmas day underwear bomber, who almost blew up a plane over Detroit. From the information thus gathered the CIA says there is a 100% chance that Al-Qaeda will attempt a terror attack on the US in the next 6 months, perhaps a second underwear bomber. There isn’t really a defense against such an attack, except at Al El, the Israeli national airline. The TSA will keep doing what it can under existing guidelines and the main thrust continues to be overseas military action such as Gen. McChrystal's big Afghan offensive which is only weeks or days away. Obviously a successful Al-Qaeda terror strike inside the US would hit global stock markets pretty hard.
Fundamentals: Weekly jobless claims came in worse than expected, which has now happened 3 weeks in a row and the market fears what the government’s big jobs report Friday will say. The great danger is that this spate of soft economic news will give the Demos a green light to pass a third stimulus bill, every step in this direction moves America’s response to the Great Recession closer to what Japan did in the 90s. Japan had 9 different stimulus packages over the “Lost Decade” and each package was less effective than the previous one. Eventually these Japanese stimulus programs created the longest bear market ever in equities and also the longest bull market ever for government debt.
Geopolitics: The FBI is doing a terrific job interrogating the Christmas day underwear bomber, who almost blew up a plane over Detroit. From the information thus gathered the CIA says there is a 100% chance that Al-Qaeda will attempt a terror attack on the US in the next 6 months, perhaps a second underwear bomber. There isn’t really a defense against such an attack, except at Al El, the Israeli national airline. The TSA will keep doing what it can under existing guidelines and the main thrust continues to be overseas military action such as Gen. McChrystal's big Afghan offensive which is only weeks or days away. Obviously a successful Al-Qaeda terror strike inside the US would hit global stock markets pretty hard.
Wednesday, February 3, 2010
Your Very Own Drone Fleet!
Charts: The S&P 500 closed at 1097, down .6%. The market is in a wobbly rally attempt, which is a far cry from being in a technical rally. This is the anatomy of a new rally: The correction’s downward momentum must be broken by a day with big gains in higher volume; that happened Tuesday. After that the market must consolidate its gains for several days; that has not happened. Finally there must be a “follow-through day” to break the consolidation, a big up day in higher volume than the first day of the rally attempt. Only one of these three things has occurred so far. Most rally attempts fail.
Fundamentals: The correction began a few weeks ago when Pres. Obama sprang his most recent financial reforms on the unsuspecting investor community. Today the President reiterated that he is committed to seeing those reforms through to the bitter end. Fear over what the White House will do to banks is hanging over the stock market like a storm cloud. The President also said he is going to push some kind of healthcare expansion, treasury yields went up as a result.
Geopolitics: On Monday the Pak Taliban put out an audio tape where H. Mehsud tells us he is still alive. And he probably was alive two days ago. But reports keep coming in from Tuesday’s giant drone strike indicating it was far and away the biggest strike ever. Eyewitnesses are saying that as many as 9 drones were in the wolf pack, the missiles strikes lasted all day and ranged far and wide. Furthermore, the wolf pack is still in the area and reports of its activities are confused and garbled. Apparently no CIA double agents are sifting through the rubble because anybody doing that is getting blown away by fresh missile salvos. Why would the CIA be so obsessed with this one village? It must be H. Mehsud’s hide out. If H. Mehsud is dead, the Pak Taliban will have a succession struggle where top leaders start killing each other.
Would you like a drone fleet of your own, courtesy of Uncle Sam? The Pak Army and ISI certainly do. The Pak Army says it is blocking key passes in the mountains between Afghanistan and Pakistan to prevent bad guy reinforcements from arriving into Helmand province where NATO is readying a big offensive. In the past the Pak Army and NATO have tried to shove bad guys at each other. Now we see cooperation.
Fundamentals: The correction began a few weeks ago when Pres. Obama sprang his most recent financial reforms on the unsuspecting investor community. Today the President reiterated that he is committed to seeing those reforms through to the bitter end. Fear over what the White House will do to banks is hanging over the stock market like a storm cloud. The President also said he is going to push some kind of healthcare expansion, treasury yields went up as a result.
Geopolitics: On Monday the Pak Taliban put out an audio tape where H. Mehsud tells us he is still alive. And he probably was alive two days ago. But reports keep coming in from Tuesday’s giant drone strike indicating it was far and away the biggest strike ever. Eyewitnesses are saying that as many as 9 drones were in the wolf pack, the missiles strikes lasted all day and ranged far and wide. Furthermore, the wolf pack is still in the area and reports of its activities are confused and garbled. Apparently no CIA double agents are sifting through the rubble because anybody doing that is getting blown away by fresh missile salvos. Why would the CIA be so obsessed with this one village? It must be H. Mehsud’s hide out. If H. Mehsud is dead, the Pak Taliban will have a succession struggle where top leaders start killing each other.
Would you like a drone fleet of your own, courtesy of Uncle Sam? The Pak Army and ISI certainly do. The Pak Army says it is blocking key passes in the mountains between Afghanistan and Pakistan to prevent bad guy reinforcements from arriving into Helmand province where NATO is readying a big offensive. In the past the Pak Army and NATO have tried to shove bad guys at each other. Now we see cooperation.
Tuesday, February 2, 2010
Jihadists Getting Clobbered
Charts: The S&P 500 closed at 1103, up 1.3%. Yesterday the index pushed above the 100-day moving average (good). Today the 100-day line was tested in an early downdraft. Support held at exactly the 100-day line, to the decimal point. That graphic display of obvious support at the long term technical indicator cheered the market for steady gains throughout the session. The market has gone from correction to rally attempt.
Fundamentals: ISM manufacturing data came in stronger than expected from 4 different continents. China consumes about 50% of the world’s industrial metals and its successful stimulus plan is leading the global industrial boom. December US personal spending came in weak and US construction spending plunged as one housing subsidy expired before the second one took hold. Early signs are that the second housing tax credit is working. Of course propping up housing with gargantuan US deficits is problematic but today Japan instructed its treasury to buy US debt, which knocked down US government debt yields. It pays to be the Superpower.
Geopolitics: In Pakistan, on a strategic mountaintop near the Afghan border, a massive two-day artillery barrage subsided Tuesday. As the smoke cleared Pak helicopter gunships and fighter bombers moved in and scorched what was left of a Taliban compound with withering fire, killing 14 bad guys; 27 more were captured and taken prisoner.
The world’s number one bad guy, Pak Taliban leader H. Mehsud was severely wounded by CIA drones in January, not killed as reported by the Pak media. However, the CIA seems to know where he is hiding, a village in N. Waziristan. That village has a permanent drone wolf pack circling overhead. On Tuesday this 5 drone wolf pack laid down a monster missile barrage, killing about a dozen bad guys and obliterating a Taliban compound. CIA double agents are picking through the rubble, searching for H. Mehsud’s corpse.
There is good tribal news out of Afghanistan. The Iraq war turned around when the Pentagon succeeded in training, equipping, and paying Sunni Awakening tribes that had originally pledged allegiance to-Al-Qaeda. A mighty army arose and clobbered the bad guys. In Afghanistan there is not a Sunni/Shiite divide. The focal point is the tribal structure of the majority Pushtun ethnic group. The Pushtun tribal family tree has two main branches: 1) The Durrani, who are mostly pro-American. Pres. Karzai is the leader of the Durrani. 2) The Ghilzai, who are mostly pro-Taliban. Mullah Omar is the most prominent Ghilzai. The equivalent to the Awakening Movement occurs if sub-tribes among the Ghilzai switch allegiance and start fighting the Taliban with US help. This is already happening: a sub-tribe within the Ghilzai called the Shinwari has signed on to fight for the good guys.
The Japanese Navy has stopped refueling American warships in the Indian Ocean. Japan wants US military bases off its soil. It is begging to participate in the alliance purely financially, like buying extra T-bills. Japanese nerves are too frayed to continue as a military partner. Pres. Obama has responded by pouring weapons into Taiwan. One ally in East Asia is getting weaker so you build up your other ally right next door. It is possible Germany will pay Poland to take over its NATO commitment in Afghanistan because Germany is currently short 3500 troops and a major offensive is being launched.
Fundamentals: ISM manufacturing data came in stronger than expected from 4 different continents. China consumes about 50% of the world’s industrial metals and its successful stimulus plan is leading the global industrial boom. December US personal spending came in weak and US construction spending plunged as one housing subsidy expired before the second one took hold. Early signs are that the second housing tax credit is working. Of course propping up housing with gargantuan US deficits is problematic but today Japan instructed its treasury to buy US debt, which knocked down US government debt yields. It pays to be the Superpower.
Geopolitics: In Pakistan, on a strategic mountaintop near the Afghan border, a massive two-day artillery barrage subsided Tuesday. As the smoke cleared Pak helicopter gunships and fighter bombers moved in and scorched what was left of a Taliban compound with withering fire, killing 14 bad guys; 27 more were captured and taken prisoner.
The world’s number one bad guy, Pak Taliban leader H. Mehsud was severely wounded by CIA drones in January, not killed as reported by the Pak media. However, the CIA seems to know where he is hiding, a village in N. Waziristan. That village has a permanent drone wolf pack circling overhead. On Tuesday this 5 drone wolf pack laid down a monster missile barrage, killing about a dozen bad guys and obliterating a Taliban compound. CIA double agents are picking through the rubble, searching for H. Mehsud’s corpse.
There is good tribal news out of Afghanistan. The Iraq war turned around when the Pentagon succeeded in training, equipping, and paying Sunni Awakening tribes that had originally pledged allegiance to-Al-Qaeda. A mighty army arose and clobbered the bad guys. In Afghanistan there is not a Sunni/Shiite divide. The focal point is the tribal structure of the majority Pushtun ethnic group. The Pushtun tribal family tree has two main branches: 1) The Durrani, who are mostly pro-American. Pres. Karzai is the leader of the Durrani. 2) The Ghilzai, who are mostly pro-Taliban. Mullah Omar is the most prominent Ghilzai. The equivalent to the Awakening Movement occurs if sub-tribes among the Ghilzai switch allegiance and start fighting the Taliban with US help. This is already happening: a sub-tribe within the Ghilzai called the Shinwari has signed on to fight for the good guys.
The Japanese Navy has stopped refueling American warships in the Indian Ocean. Japan wants US military bases off its soil. It is begging to participate in the alliance purely financially, like buying extra T-bills. Japanese nerves are too frayed to continue as a military partner. Pres. Obama has responded by pouring weapons into Taiwan. One ally in East Asia is getting weaker so you build up your other ally right next door. It is possible Germany will pay Poland to take over its NATO commitment in Afghanistan because Germany is currently short 3500 troops and a major offensive is being launched.
Subscribe to:
Posts (Atom)
