CIA Still Extremely Pissed Off

Charts: The S&P 500 closed at 1168, down .6%. The index pushed below support at 1170, which is mildly bearish. FXI (index of Chinese blue chips) retreated sharply from its 200-day moving average, which is more than mildly bearish. All year we’ve seen emerging markets underperform. American leadership is good but the followers need to respond to the leader.

Fundamentals: Portugal’s debt was downgraded today. This caused the dollar to rock up. The strengthening dollar hurts emerging markets, the only true source of growth in the world economy. US housing data continues to weaken, which is causing US treasury yields to go up. Yield on the 10-year leaped by the greatest amount in 8 months. For the past three trading days the market has decided that Obama-Care won’t destroy the world economy for another couple years. Today the market is moving past Obama-Care and focusing on some of the other problems that have been with us for awhile, and getting worried again.

Geopolitics: CIA drones once again sent multiple salvos of Hellfire missiles into Taliban compounds and vehicles in North Waziristan. The ISI says that 6 bad guys were killed but once again their identity cannot be confirmed because the drones are more aggressive than usual and independent observers can’t get close to the killing zone. The CIA remains extremely pissed off. The group I have been calling the “North Waziristan Taliban” is actually called Hezb-e-Islami. These non-English names are impossible to remember or keep straight, so let’s stick with my terminology. A spokesman for the NW Taliban said today that his group is not actively negotiating with Karzai’s government. That is a lie of course, but it is evidence that the CIA’s tactic of literally blasting these peace talks apart is beginning to work.
Karzai is worried about his fate when American troops begin to be withdrawn from Afghanistan in about a year. America wants the Pak Army to essentially replace the US Army/USMC when this happens. This would make Karzai a figurehead at best. Right now the top generals of the Pak Army are in Washington DC negotiating a massive increase in military aid and weaponry. Karzai is having kittens.