Charts: The market had fallen into a pattern of wild swings in big volume, up one day and down the next. This is called churning or stalling, high volume and high volatility movement that goes nowhere. When the market is furiously running in place it can signal a market top. Today the S&P 500 closed at 1187, down 1.7%, again taking out key support and breaking down out of the stalling pattern. It looks like a correction has started.
Fundamentals: The Congressional grilling that Goldman Sachs is undergoing has revealed that the SEC doesn’t have a case. In a panic, the SEC asked a US Attorney General to open a criminal investigation against Goldman, masking incompetence with ultra-aggressiveness. This is the sort of attack on the private sector we would expect from Hugo Chavez. Investors are terrified that the rule book is being thrown out the window and anything goes.
Yesterday the Republicans ended their filibuster with the understanding that the Demos would give way on the more toxic aspects of the pending financial reform proposal. Today the lead Republican, Sen. Shelby, said the Demos lied and aren’t compromising on anything. If Republicans don’t grow a set and return to a rock solid filibuster, a world of pain beckons.
Geopolitics: The Pentagon’s big report on the Afghan war points to one major problem: The bad guys are able to infiltrate back into areas that the Marines have cleared, such as the city of Marja. In Iraq and Pakistan this has not been as big a problem because local tribes that live in the cleared areas have been effectively armed and trained by the good guys. These Pak and Iraqi tribes have been able to keep the bad guys out. The tribal structure of Afghanistan is so weak this hasn’t yet been possible. This is why the Pentagon is saying the Afghan war will take much longer than anybody anticipates. But the good guys will still win.
India and Pakistan are restarting their peace talks. One of the major points of contention is shared waterways, which is being addressed in these talks. America has blatantly been favoring Pakistan over India, which has been the right move up till now. It’s time for India to get a little love. Pakistan is saying that the talks will address the issue of terrorism, India’s main concern. So here’s the love.
Friday, April 30, 2010
Thursday, April 29, 2010
Egyptian Spies Hang Bad Guys
Charts: The major indexes smashed up through resistance levels in big volume, undoing recent technical damage. The broad index finished at 1207, up 1.3%. Leadership has flipped around and is now very good. Next resistance is at 1220.
Fundamentals: The EU and IMF have quit pussyfooting around and are taking a hammer to the Greek debt problem. Yields on Greek, Spanish, and Portuguese debt are dropping.
Cowardly Republicans rolled over on the financial reform filibuster. The bill is now slated for debate. But there is no bill. It is 100% in flux. The GOP is promising the final bill will not hurt car dealers and the really nasty parts will be gutted.
Geopolitics: Egypt’s intelligence agency has caught 26 Hezbollah spies. Four of these bad guys are already being fitted with hangman nooses. It is a virtual certainty that Egyptian intelligence is receiving massive help from the CIA. Other allied Muslim intelligence agencies are being similarly helped, probably with training, high tech devices, and information sharing. So while there is no “central intelligence agency” (note the small caps) linking the 17 American intelligence agencies together, there is such an agency linking and coordinating Muslim intelligence agencies. Ironically, the CIA is well-named after all.
The Pentagon sent a 150-page report on the Afghan war to Congress. Brutally honest, the report shows the Pentagon’s failures and successes and can be summed up this way: the Afghan war is being won, but at a much slower pace than Pres. Obama has promised the American public. The Pentagon calls the global conflict the Long War for a reason. Defense stocks jumped today. The more levered to the LW, the more they jumped; for instance HRS was up 9%, ITT was up 3%, and RTN was up 2%. HRS makes encrypted tactical radios for infantrymen, ITT = night vision goggles, RTN = tracking systems for drones.
Specific Stocks: Growth at a discount stocks trade at a lower multiple than their peers. Dow Chemical (DOW) and DuPont (DD) both reported blowout numbers. DD reported better growth, yet it trades at a much lower multiple than DOW. MMM is the world’s leading diversified manufacturer. Its PE ratio is two percentage points lower than the industry average. The reason: MMM just acquired a big Asian competitor and investors reflexively hate acquisitions. As far as DD vs. DOW, the latter is always making sexy partnership deals in Saudi Arabia, but its blowout numbers came from its boring Basic Plastics division and other bread and butter stuff. In fact, DOW wants to sell its bread and butter stuff to finance the sexy stuff. In all this I am treating growth stocks like value. What about actual value? Goldman Sachs (GS) is trading at a gigantic discount to its peers. If it survives the SEC attack it is a screaming buy.
Fundamentals: The EU and IMF have quit pussyfooting around and are taking a hammer to the Greek debt problem. Yields on Greek, Spanish, and Portuguese debt are dropping.
Cowardly Republicans rolled over on the financial reform filibuster. The bill is now slated for debate. But there is no bill. It is 100% in flux. The GOP is promising the final bill will not hurt car dealers and the really nasty parts will be gutted.
Geopolitics: Egypt’s intelligence agency has caught 26 Hezbollah spies. Four of these bad guys are already being fitted with hangman nooses. It is a virtual certainty that Egyptian intelligence is receiving massive help from the CIA. Other allied Muslim intelligence agencies are being similarly helped, probably with training, high tech devices, and information sharing. So while there is no “central intelligence agency” (note the small caps) linking the 17 American intelligence agencies together, there is such an agency linking and coordinating Muslim intelligence agencies. Ironically, the CIA is well-named after all.
The Pentagon sent a 150-page report on the Afghan war to Congress. Brutally honest, the report shows the Pentagon’s failures and successes and can be summed up this way: the Afghan war is being won, but at a much slower pace than Pres. Obama has promised the American public. The Pentagon calls the global conflict the Long War for a reason. Defense stocks jumped today. The more levered to the LW, the more they jumped; for instance HRS was up 9%, ITT was up 3%, and RTN was up 2%. HRS makes encrypted tactical radios for infantrymen, ITT = night vision goggles, RTN = tracking systems for drones.
Specific Stocks: Growth at a discount stocks trade at a lower multiple than their peers. Dow Chemical (DOW) and DuPont (DD) both reported blowout numbers. DD reported better growth, yet it trades at a much lower multiple than DOW. MMM is the world’s leading diversified manufacturer. Its PE ratio is two percentage points lower than the industry average. The reason: MMM just acquired a big Asian competitor and investors reflexively hate acquisitions. As far as DD vs. DOW, the latter is always making sexy partnership deals in Saudi Arabia, but its blowout numbers came from its boring Basic Plastics division and other bread and butter stuff. In fact, DOW wants to sell its bread and butter stuff to finance the sexy stuff. In all this I am treating growth stocks like value. What about actual value? Goldman Sachs (GS) is trading at a gigantic discount to its peers. If it survives the SEC attack it is a screaming buy.
Wednesday, April 28, 2010
Pak Army Kills 450 Bad Guys
Charts: On Euro-debt fears, the Dow plunged under 11,000 yesterday but regained that key support level today. Also on Tuesday, in massive volume, the S&P 500 smashed through support at 1200 and 1190, for a savage 2.3% loss. Today the broad index retook 1190 in good volume to finish at 1191, up .7% on the day. Leadership is poor. The rally is intact but very fragile.
Fundamentals: This week S&P downgraded the debt on Greece, Portugal, and Spain, jacking up yields on Euro-periphery bonds, increasing the chance of default and pushing the global financial system a step closer to Armageddon. In response, the EU and IMF are saying $132 billion will soon prop up Greek debt. Finally they’re hitting Greek debt with a hammer.
Republicans are halting the financial reform bill. Their filibuster is holding because Democrat Sen. Nelson has joined the Republicans. Financials are supporting the entire market right now. And the filibuster is supporting financials. In other words, if Sen. Nelson caves in there will probably be a market correction. He caved in on healthcare, so this is a real danger.
S. Korean GDP surged 7.8% y/y, reminding us that strength in emerging Asia counters weakness in Europe. The deciding factor is therefore America, which magnifies the importance of financial reform failing.
Geopolitics: Israeli PM Netanyahu just blinked in his stare-down with Obama, agreeing to freeze settlement building in E. Jerusalem and buckling on a host of other issues that should get peace talks going again with the Palestinians.
The interim government of Kyrgyzstan has not yet established control over the country. Looting in the capital city is increasing day by day as are anti-government demonstrations. The family of the deposed Kyrgyz President is actively working against the government but there is not yet a genuine Islamic insurgency, probably because the Taliban is gearing up for the coming Battle of Kandahar. Russia’s FSB is straightening out this mess, maybe with US help.
Thailand too is sliding into chaos at the hands of pro-democracy rebels. Unfortunately Thailand has an established Al-Qaeda linked Islamic insurgency and chaos plays into its hands.
With the far-flung nature of these Long War conflicts in mind, the CIA announced restructuring efforts that will allow it to quickly “surge” officers to hotspots around the globe. Just such a surge is occurring right now in Somalia and Yemen.
Meanwhile, CIA drones killed 5 bad guys in Pakistan Tuesday. The Afghan Taliban attacked a NATO supply depot in Kandahar and says it is laying in supplies for the big battle. The Pak Army killed 5 bad guys Wednesday. In a little over a month the Pak Army has killed 450 bad guys and destroyed 50 Taliban outposts.
Fundamentals: This week S&P downgraded the debt on Greece, Portugal, and Spain, jacking up yields on Euro-periphery bonds, increasing the chance of default and pushing the global financial system a step closer to Armageddon. In response, the EU and IMF are saying $132 billion will soon prop up Greek debt. Finally they’re hitting Greek debt with a hammer.
Republicans are halting the financial reform bill. Their filibuster is holding because Democrat Sen. Nelson has joined the Republicans. Financials are supporting the entire market right now. And the filibuster is supporting financials. In other words, if Sen. Nelson caves in there will probably be a market correction. He caved in on healthcare, so this is a real danger.
S. Korean GDP surged 7.8% y/y, reminding us that strength in emerging Asia counters weakness in Europe. The deciding factor is therefore America, which magnifies the importance of financial reform failing.
Geopolitics: Israeli PM Netanyahu just blinked in his stare-down with Obama, agreeing to freeze settlement building in E. Jerusalem and buckling on a host of other issues that should get peace talks going again with the Palestinians.
The interim government of Kyrgyzstan has not yet established control over the country. Looting in the capital city is increasing day by day as are anti-government demonstrations. The family of the deposed Kyrgyz President is actively working against the government but there is not yet a genuine Islamic insurgency, probably because the Taliban is gearing up for the coming Battle of Kandahar. Russia’s FSB is straightening out this mess, maybe with US help.
Thailand too is sliding into chaos at the hands of pro-democracy rebels. Unfortunately Thailand has an established Al-Qaeda linked Islamic insurgency and chaos plays into its hands.
With the far-flung nature of these Long War conflicts in mind, the CIA announced restructuring efforts that will allow it to quickly “surge” officers to hotspots around the globe. Just such a surge is occurring right now in Somalia and Yemen.
Meanwhile, CIA drones killed 5 bad guys in Pakistan Tuesday. The Afghan Taliban attacked a NATO supply depot in Kandahar and says it is laying in supplies for the big battle. The Pak Army killed 5 bad guys Wednesday. In a little over a month the Pak Army has killed 450 bad guys and destroyed 50 Taliban outposts.
Sunday, April 25, 2010
Opening Moves In Battle Of Kandahar
Charts: The S&P 500 was up 2% last week. Chinese stocks were down 5%. Hong Kong was down almost 3%. Japan was down 1.7%. Asia is the only source of genuinely powerful growth in the world. The S&P 500 looks okay but global stock markets are not looking super healthy. Fear of Greece defaulting is causing American stocks to acquire a safe haven aspect. This speaks to strong geopolitics and weak global fundamentals (scary).
Fundamentals: With sovereign debt loads running about 3 times the historical average in OECD countries we have to question the sustainability of government borrowing at these levels. Going forward, these astronomic debt levels are only sustainable if GDP growth at least equals the yield on a given government’s 10-year bond. The yield on Greece’s 10-year bond is about 9% and the consensus forecast for GDP growth is slightly negative for the rest of this year and 2011. So there is a real problem with Greece and proposed bailout schemes might not get the job done. America has a 10-year bond yield of about 3.8% and GDP growth is forecast at 3%. This tells us that the situation in America (and therefore the world) is touch and go. Whatever you think about the financial reform bill preventing some future credit crisis, in the here and now it will strangle growth. The cap and trade bill that taxes carbon emissions would be even worse. At some point Washington is going to have to ink free trade accords and institute other genuine free market pro-growth policies or we’re going to have to start thinking about cashing out our stock portfolios, harvesting gains, and riding out another bear.
Geopolitics: Six CIA drones have been circling a village in N. Waziristan, Pakistan, since Saturday. On Sunday the wolf-pack launched Hellfire missiles into two Taliban houses, killing at least 8 bad guys. The drones stayed in place and fired missiles at rescue parties entering the two buildings. The drones are still over this town and have it in lockdown mode.
It’s a good thing the German Army has transformed itself from a pacifistic Bundeswehr to a warlike Wehrmacht because the Afghan province it controls, Kunduz Province, has become a new hot zone in the war. A key NATO supply line runs through Kunduz and the bad guys are stepping up efforts to attack NATO supply lines, to hamper the coming offensive in Kandahar. Over the weekend the Afghan Army (backed by US ground forces and air power) killed 20 Taliban fighters in Kunduz. There has been constant fighting for the past week in different parts of northern Afghanistan between the Taliban and the Afghan Army and casualties are stacking up without being officially reported through media channels.
Further south, another NATO supply line was attacked in tribal Pakistan along the Afpak border. Four fuel tankers were set ablaze by the bad guys and several good guys were killed. All this fury over NATO supply lines amounts to opening moves in the Battle of Kandahar.
Fundamentals: With sovereign debt loads running about 3 times the historical average in OECD countries we have to question the sustainability of government borrowing at these levels. Going forward, these astronomic debt levels are only sustainable if GDP growth at least equals the yield on a given government’s 10-year bond. The yield on Greece’s 10-year bond is about 9% and the consensus forecast for GDP growth is slightly negative for the rest of this year and 2011. So there is a real problem with Greece and proposed bailout schemes might not get the job done. America has a 10-year bond yield of about 3.8% and GDP growth is forecast at 3%. This tells us that the situation in America (and therefore the world) is touch and go. Whatever you think about the financial reform bill preventing some future credit crisis, in the here and now it will strangle growth. The cap and trade bill that taxes carbon emissions would be even worse. At some point Washington is going to have to ink free trade accords and institute other genuine free market pro-growth policies or we’re going to have to start thinking about cashing out our stock portfolios, harvesting gains, and riding out another bear.
Geopolitics: Six CIA drones have been circling a village in N. Waziristan, Pakistan, since Saturday. On Sunday the wolf-pack launched Hellfire missiles into two Taliban houses, killing at least 8 bad guys. The drones stayed in place and fired missiles at rescue parties entering the two buildings. The drones are still over this town and have it in lockdown mode.
It’s a good thing the German Army has transformed itself from a pacifistic Bundeswehr to a warlike Wehrmacht because the Afghan province it controls, Kunduz Province, has become a new hot zone in the war. A key NATO supply line runs through Kunduz and the bad guys are stepping up efforts to attack NATO supply lines, to hamper the coming offensive in Kandahar. Over the weekend the Afghan Army (backed by US ground forces and air power) killed 20 Taliban fighters in Kunduz. There has been constant fighting for the past week in different parts of northern Afghanistan between the Taliban and the Afghan Army and casualties are stacking up without being officially reported through media channels.
Further south, another NATO supply line was attacked in tribal Pakistan along the Afpak border. Four fuel tankers were set ablaze by the bad guys and several good guys were killed. All this fury over NATO supply lines amounts to opening moves in the Battle of Kandahar.
Friday, April 23, 2010
Don't Piss Off The Giant
Charts: The S&P 500 closed at 1217, up .7%. Today the index punched through one resistance level, 1214. Earlier in the week it found clear support at exactly 1190. It is staging bullish reversals and finishing the day at the higher end of its trading band, bullish signs. Small caps are leading large caps, also good. However, Chinese stocks and American financials are struggling. Investor sentiment is signaling complacency.
Fundamentals: The financial reform bill doesn’t set out new parameters for financial firms; it creates new bureaucracies and empowers old ones to establish these parameters. The bill has the federal government running the financial industry the way state governments run electric utilities. Take derivatives, since the credit crisis subsided most derivatives have moved by themselves onto central clearing platforms, but others have not, the free market at work. If the bill passes, a “derivative czar” in DC will decide which ones will be traded on what platform. Like any attempt at central planning this will prove to be a disaster. But the bill hasn’t passed yet. On Friday there was some evidence of Republicans and Blue Dogs stiffening their spines. I hate to get spiritual in this newsletter, but it could be that the ghost of Ronald Reagan is stirring.
Geopolitics: Here is Friday’s Long War body count… Pakistan: 25 dead bad guys and 1 dead good guy. Iraq: 56 dead innocent civilians at the hands of Al-Qaeda. Afghanistan: 5 dead bad guys and 2 dead good guys. Somalia: Al-Shabab and CIA sponsored Ahlu Sunnah have been locked in heavy fighting for about a week, dozens dead on both sides.
The fuel for much of this Long War bloodshed is, of course, Israel. Recently Obama said that announcements of new Israeli settlement projects in the occupied territories should be banned but not the actual projects, a way to slowly ease into a total ban. Israel saw this slow easing as a sign of weakness and flatly turned it down; furthermore Israel sidelined Special Envoy Mitchell and brazenly picked the weakest US diplomat in the docket as its preferred American liaison. This pissed Obama off. He switched gears and the State Department now backs a total settlement ban. Mitchell was put on a jet and Israeli PM Netanyahu was told to deal with the Special Envoy and nobody else. As Obama stewed, his anger continued mounting and he is now threatening to create his own peace accord and force it on the Palestinians and Israelis alike. The Palestinians are delighted. The Israelis are terrified. The lesson here? Don’t piss off the most powerful man on the planet.
Specific Stocks: Stocks are classified as Growth or Value. There is another category, so-called Growth at a Discount, or growth stocks that trade at a lower multiple than their peers. The best example is DuPont (DD) vs. Dow Chemical (DOW). DD has a multiple of 21 and DOW 95. Incredibly, over the past five years, DD has actually grown faster than DOW (crazy, huh?). DD and DOW are rivals but the real rivalry is DD and Monsanto (MON). DD and MON are the leaders in genetically engineered corn. DD corn is superior, it contains less GMO components but produces higher yields and is taking market share away from MON.
Fundamentals: The financial reform bill doesn’t set out new parameters for financial firms; it creates new bureaucracies and empowers old ones to establish these parameters. The bill has the federal government running the financial industry the way state governments run electric utilities. Take derivatives, since the credit crisis subsided most derivatives have moved by themselves onto central clearing platforms, but others have not, the free market at work. If the bill passes, a “derivative czar” in DC will decide which ones will be traded on what platform. Like any attempt at central planning this will prove to be a disaster. But the bill hasn’t passed yet. On Friday there was some evidence of Republicans and Blue Dogs stiffening their spines. I hate to get spiritual in this newsletter, but it could be that the ghost of Ronald Reagan is stirring.
Geopolitics: Here is Friday’s Long War body count… Pakistan: 25 dead bad guys and 1 dead good guy. Iraq: 56 dead innocent civilians at the hands of Al-Qaeda. Afghanistan: 5 dead bad guys and 2 dead good guys. Somalia: Al-Shabab and CIA sponsored Ahlu Sunnah have been locked in heavy fighting for about a week, dozens dead on both sides.
The fuel for much of this Long War bloodshed is, of course, Israel. Recently Obama said that announcements of new Israeli settlement projects in the occupied territories should be banned but not the actual projects, a way to slowly ease into a total ban. Israel saw this slow easing as a sign of weakness and flatly turned it down; furthermore Israel sidelined Special Envoy Mitchell and brazenly picked the weakest US diplomat in the docket as its preferred American liaison. This pissed Obama off. He switched gears and the State Department now backs a total settlement ban. Mitchell was put on a jet and Israeli PM Netanyahu was told to deal with the Special Envoy and nobody else. As Obama stewed, his anger continued mounting and he is now threatening to create his own peace accord and force it on the Palestinians and Israelis alike. The Palestinians are delighted. The Israelis are terrified. The lesson here? Don’t piss off the most powerful man on the planet.
Specific Stocks: Stocks are classified as Growth or Value. There is another category, so-called Growth at a Discount, or growth stocks that trade at a lower multiple than their peers. The best example is DuPont (DD) vs. Dow Chemical (DOW). DD has a multiple of 21 and DOW 95. Incredibly, over the past five years, DD has actually grown faster than DOW (crazy, huh?). DD and DOW are rivals but the real rivalry is DD and Monsanto (MON). DD and MON are the leaders in genetically engineered corn. DD corn is superior, it contains less GMO components but produces higher yields and is taking market share away from MON.
Thursday, April 22, 2010
Germany Regains Warrior Spirit
Charts: Today’s newsletter goes out before the bell, but at midday this is the technical story: Global markets are very fragile and would certainly be tanking if not for American leadership. Stocks are strongest in proportion to exposure to the US market. US small caps (IWM) are strong and stronger still is US retail (XRT). The charts are telling us that good geopolitics is countering bad fundamentals.
Fundamentals: The EU has unearthed new smoke and mirrors accounting gimmicks that understate Greek debt, causing Greek yields to skyrocket, the danger of default grows greater day by day. Portuguese debt is beginning to come under pressure. If a domino effect occurs there is $600 billion in EU periphery debt that could go sour. Advanced country sovereign debt is the financial crisis of our day and the principle threat to the recovery.
Geopolitics: The invincible Pak Army killed 35 bad guys on Thursday and 1 good guy was killed.
Germany has added 500 extra soldiers to its Afghan force, bringing the total to 4500. These superb soldiers are now being allowed to fight. 7 German soldiers have died in combat so far this month. German Chancellor Merkel made a speech to her Parliament today. For the first time she used the words “war” and “warfare” to describe what Germany is doing in Afghanistan. To American ears this may sound trivial, but in reality it is a major sea-change for Germany. In a recent firefight with the Taliban, 14 American soldiers came to the German Army’s aid and helped turn the tide. Merkel awarded these American soldiers the Golden Cross yesterday. Again, this is a symbolic gesture that carries more freight than we Americans might suppose. Germany has stepped up to the plate just as Holland announced troop withdrawals from Afghanistan. Germany’s action stopped a mass exodus of NATO allies from the war zone. Germany’s new found bellicosity is not what the Taliban wants to see. Today a Taliban spokesman resignedly talked about what would happen if it lost the looming Battle of Kandahar. Even the bad guys know what kind of military machine Germany was at one point and could be again. It took the combined might of 64 nations to defeat Germany in WW II. Today’s Bundeswehr is starting to resemble the mighty Wehrmacht.
Fundamentals: The EU has unearthed new smoke and mirrors accounting gimmicks that understate Greek debt, causing Greek yields to skyrocket, the danger of default grows greater day by day. Portuguese debt is beginning to come under pressure. If a domino effect occurs there is $600 billion in EU periphery debt that could go sour. Advanced country sovereign debt is the financial crisis of our day and the principle threat to the recovery.
Geopolitics: The invincible Pak Army killed 35 bad guys on Thursday and 1 good guy was killed.
Germany has added 500 extra soldiers to its Afghan force, bringing the total to 4500. These superb soldiers are now being allowed to fight. 7 German soldiers have died in combat so far this month. German Chancellor Merkel made a speech to her Parliament today. For the first time she used the words “war” and “warfare” to describe what Germany is doing in Afghanistan. To American ears this may sound trivial, but in reality it is a major sea-change for Germany. In a recent firefight with the Taliban, 14 American soldiers came to the German Army’s aid and helped turn the tide. Merkel awarded these American soldiers the Golden Cross yesterday. Again, this is a symbolic gesture that carries more freight than we Americans might suppose. Germany has stepped up to the plate just as Holland announced troop withdrawals from Afghanistan. Germany’s action stopped a mass exodus of NATO allies from the war zone. Germany’s new found bellicosity is not what the Taliban wants to see. Today a Taliban spokesman resignedly talked about what would happen if it lost the looming Battle of Kandahar. Even the bad guys know what kind of military machine Germany was at one point and could be again. It took the combined might of 64 nations to defeat Germany in WW II. Today’s Bundeswehr is starting to resemble the mighty Wehrmacht.
Wednesday, April 21, 2010
Slap Israel So Hard It Can't See Straight
Charts: The S&P 500 closed at 1206, down .1%. The broad index found support at 1200; it looks okay but certain chart data bears watching. FXI (Chinese blue chip index) in the past few days has plunged and is sitting just above its 200-day moving average. If it breaks below the 200-day line we are facing technical signs that China is in a bear market. XLF (big cap US financial index) is down 2.6% since the Goldman attack and it needs to stabilize. The VIX index (Wall Street fear gauge) is swinging wildly from day to day and it too needs to stabilize.
Fundamentals: It looks like the Republicans are rolling over on financial reform and this toxic nightmare will get passed. The threat of Greece defaulting is back in the news. Yield on the 10-year is coming down nicely because of Greece. US small caps (IWM) benefit as safe haven stocks on Greece fears.
Geopolitics: The prospect of Hezbollah acquiring Scud missiles has Israel breaking out in a cold sweat. Israeli defense officials are debating whether they need American permission for an airstrike against Iran (Hezbollah’s sponsor). The Pentagon has run numerous computer game simulations of an Israeli airstrike. These simulations are classified but the Pentagon has tacitly endorsed some private sector simulations, a hint as to what it thinks would happen in this eventuality. The Pentagon believes that the consequences of an Israeli airstrike against Iran would be much worse than politicians or voters could possibly imagine. Israeli fighter-bombers and its tiny fleet of refueling tankers are inadequate to get the job done in a reasonable manner. It would take months of bombing sorties, flying over powerful Muslim countries like Turkey or Saudi Arabia day after day, fighting through the Turkish or Saudi Air Force to get at Iran. These simulations show Israel seizing land and building an air base in Saudi Arabia to get around this problem. Unable to reach Israel proper, Iran’s only response would be to lash out at American positions in Afghanistan and Iraq as well as the Israeli air base in Saudi Arabia. The Kingdom would find itself at war with Israel and Iran. A civil war would break out inside Iran as the Iranian Army was bogged down abroad. America would be forced to finish the fight that Israel started, probably increasing our Mideast troop presence 20 or 30 times. America could, of course, succeed in finishing such a fight, but the world as we know it would change.
America needs to slap Israel so hard it can’t see straight. Here is the roadblock to doing just that: The Bible makes over 600 references to Jerusalem. The Koran makes zero references to Jerusalem. Evangelical Christians believe Israel’s occupation of certain parts of the Holy Land is a sign that Jesus will soon return to Earth. Evangelical Christians have a huge sway over Republicans and Blue Dog Democrats. However, I believe Obama is a foreign policy genius and will figure out a way to ring Israel’s bell.
Specific Stocks: Defense stocks levered to the Long War are rocking upward. Gates is opening the floodgates to arming our allies, cutting red tape, etc.
Fundamentals: It looks like the Republicans are rolling over on financial reform and this toxic nightmare will get passed. The threat of Greece defaulting is back in the news. Yield on the 10-year is coming down nicely because of Greece. US small caps (IWM) benefit as safe haven stocks on Greece fears.
Geopolitics: The prospect of Hezbollah acquiring Scud missiles has Israel breaking out in a cold sweat. Israeli defense officials are debating whether they need American permission for an airstrike against Iran (Hezbollah’s sponsor). The Pentagon has run numerous computer game simulations of an Israeli airstrike. These simulations are classified but the Pentagon has tacitly endorsed some private sector simulations, a hint as to what it thinks would happen in this eventuality. The Pentagon believes that the consequences of an Israeli airstrike against Iran would be much worse than politicians or voters could possibly imagine. Israeli fighter-bombers and its tiny fleet of refueling tankers are inadequate to get the job done in a reasonable manner. It would take months of bombing sorties, flying over powerful Muslim countries like Turkey or Saudi Arabia day after day, fighting through the Turkish or Saudi Air Force to get at Iran. These simulations show Israel seizing land and building an air base in Saudi Arabia to get around this problem. Unable to reach Israel proper, Iran’s only response would be to lash out at American positions in Afghanistan and Iraq as well as the Israeli air base in Saudi Arabia. The Kingdom would find itself at war with Israel and Iran. A civil war would break out inside Iran as the Iranian Army was bogged down abroad. America would be forced to finish the fight that Israel started, probably increasing our Mideast troop presence 20 or 30 times. America could, of course, succeed in finishing such a fight, but the world as we know it would change.
America needs to slap Israel so hard it can’t see straight. Here is the roadblock to doing just that: The Bible makes over 600 references to Jerusalem. The Koran makes zero references to Jerusalem. Evangelical Christians believe Israel’s occupation of certain parts of the Holy Land is a sign that Jesus will soon return to Earth. Evangelical Christians have a huge sway over Republicans and Blue Dog Democrats. However, I believe Obama is a foreign policy genius and will figure out a way to ring Israel’s bell.
Specific Stocks: Defense stocks levered to the Long War are rocking upward. Gates is opening the floodgates to arming our allies, cutting red tape, etc.
Tuesday, April 20, 2010
Al-Qaeda In Iraq Clobbered
Charts: The S&P 500 closed at 1207, up .8%. Support at 1190 was tested successfully several times during the SEC vs. Goldman sell-off. Earlier we saw that 1190 was a battleground support level. This is why it held up under the latest onslaught.
Fundamentals: Word has leaked out that the SEC had voted 3-2, along party lines, to attack Goldman. Two Republicans voted against the attack. So there is not a monolithic government effort to tear apart the economy and maybe at long last the Republicans are getting their mojo back. This newfound mojo had better defeat the financial reform bill or the warm, fuzzy feeling will go away.
Geopolitics: Afghan and NATO forces killed 13 bad guys, including 4 leaders, on Monday. A Taliban suicide bomber killed 2 good guys after infiltrating a NATO base. Taliban suicide bombers are killing large numbers of innocents every day in Pak tribal lands lately.
Iraqi and US Special Forces killed the #1, #2, and #15 ranked leaders of Al Qaeda in Iraq, delivering the bad guys the single worst blow of the war. This helped global stock markets. Here we see Iraqi/CIA cooperation from simply reading the mainstream media.
Recent events in Kyrgyzstan require deductive logic to ferret out the CIA’s role. Consider: Kyrgyz’s deposed bad guy president, Mr. Bakiyev, was trying to jumpstart a guerilla war by addressing a huge group of his followers in the southern part of the country when a group of men (supposedly part of his loyal group) opened fire on the deposed president, scaring the hell out of him. As if on cue, diplomats from Russia and America quickly made contact with the terrified Bakiyev and spirited him to nearby Kazakhstan. Since then an emboldened Bakiyev has escaped his exiled country for parts unknown and bad guys have killed 5 people near the Kyrgyz capital, possibly the start of an Islamic insurgency. Deductive logic tells us that, with CIA cooperation, Russia’s FSB planted gunmen in Bakiyev’s group and they opened fire. Bakiyev has apparently figured this out and is back in the fight. CIA/FSB cooperation is good. A new insurgency is bad.
Specific Stocks: Syria is apparently giving Scud missiles to Hezbollah in Lebanon, giving the Shiite radicals the ability to hit any part of Israel. This is good for Raytheon (RTN) and its Patriot anti-missile system. It is bad for the Israeli stock market (ISL).
Fundamentals: Word has leaked out that the SEC had voted 3-2, along party lines, to attack Goldman. Two Republicans voted against the attack. So there is not a monolithic government effort to tear apart the economy and maybe at long last the Republicans are getting their mojo back. This newfound mojo had better defeat the financial reform bill or the warm, fuzzy feeling will go away.
Geopolitics: Afghan and NATO forces killed 13 bad guys, including 4 leaders, on Monday. A Taliban suicide bomber killed 2 good guys after infiltrating a NATO base. Taliban suicide bombers are killing large numbers of innocents every day in Pak tribal lands lately.
Iraqi and US Special Forces killed the #1, #2, and #15 ranked leaders of Al Qaeda in Iraq, delivering the bad guys the single worst blow of the war. This helped global stock markets. Here we see Iraqi/CIA cooperation from simply reading the mainstream media.
Recent events in Kyrgyzstan require deductive logic to ferret out the CIA’s role. Consider: Kyrgyz’s deposed bad guy president, Mr. Bakiyev, was trying to jumpstart a guerilla war by addressing a huge group of his followers in the southern part of the country when a group of men (supposedly part of his loyal group) opened fire on the deposed president, scaring the hell out of him. As if on cue, diplomats from Russia and America quickly made contact with the terrified Bakiyev and spirited him to nearby Kazakhstan. Since then an emboldened Bakiyev has escaped his exiled country for parts unknown and bad guys have killed 5 people near the Kyrgyz capital, possibly the start of an Islamic insurgency. Deductive logic tells us that, with CIA cooperation, Russia’s FSB planted gunmen in Bakiyev’s group and they opened fire. Bakiyev has apparently figured this out and is back in the fight. CIA/FSB cooperation is good. A new insurgency is bad.
Specific Stocks: Syria is apparently giving Scud missiles to Hezbollah in Lebanon, giving the Shiite radicals the ability to hit any part of Israel. This is good for Raytheon (RTN) and its Patriot anti-missile system. It is bad for the Israeli stock market (ISL).
Sunday, April 18, 2010
Don't Recruit Refugees, Kill Them!
Charts: Assuming the rally isn’t clobbered by the SEC’s witch hunt there is a massive resistance region about 4% above the current level of the S&P 500. Around 1220-1250 we have a resistance triple whammy: At the top of the band is where the broad index was right before Lehman Brothers collapsed, the bottom of the band is where Goldman Sachs thinks fair market value resides, and in the middle we have our next big Fibonacci number.
Fundamentals: The SEC is probably going to hammer other firms that traded in Collateral Debt Obligations (CDOs) besides Goldman. It’s easy to paint a picture of this triggering a correction or worse. It will make the crippling financial reform bill more likely to pass. It will open a floodgate of secondary lawsuits against the firms being attacked. And it is already lowering the value of the toxic assets (CDOs and other acronyms) on bank balance sheets, which will trigger more write-downs, which will curb lending, and start a vicious downward spiral. Just for fun let’s assume growth in China and other positives keep the rally going. The data mining of a broad-based SEC witch hunt will be enormously profitable for data storage firms like Iron Mountain (IRM) and Xyratex (XRTX). Warren Buffet loves IRM.
Geopolitics: In the Pak tribal lands, the Taliban is sending suicide bombers into the refugee camps the Pak Army has set up near its ongoing offensive, killing dozens of innocents. The Taliban doesn’t want non-combatant villagers to leave the battle zone for the safety of these camps but rather to stay and act as human shields. In the twisted calculus of the Long War this is a good sign. Previously the Taliban treated the refugee camps as recruiting stations, infiltrating them with a few senior bad guys who would talk young men into joining up. The Taliban is now so hated by the average tribesman there is no chance of recruiting refugees, only killing them.
Several weeks ago Afghan President Karzai threatened to join the Taliban unless he was allowed to pick all the members of an electoral watchdog group, which would let him rig the next election. The UN and Karzai have arrived at a compromise. Karzai can pick just enough watchdogs to semi-rig the election, enough to guarantee his victory but not walk away with it. This is also the kind of election that is occurring in Sudan and both are positive developments.
In Heavy fighting, 29 bad guys (including 2 commanders) have been killed in Northern Afghanistan over the past 4 days as NATO launches an offensive designed to secure its supply lines. NATO is also eliminating certain luxury items from its supply chain like pizzas and burgers. This emphasis on supply lines is a sign that the good guys are getting ready for the big Kandahar offensive.
Fundamentals: The SEC is probably going to hammer other firms that traded in Collateral Debt Obligations (CDOs) besides Goldman. It’s easy to paint a picture of this triggering a correction or worse. It will make the crippling financial reform bill more likely to pass. It will open a floodgate of secondary lawsuits against the firms being attacked. And it is already lowering the value of the toxic assets (CDOs and other acronyms) on bank balance sheets, which will trigger more write-downs, which will curb lending, and start a vicious downward spiral. Just for fun let’s assume growth in China and other positives keep the rally going. The data mining of a broad-based SEC witch hunt will be enormously profitable for data storage firms like Iron Mountain (IRM) and Xyratex (XRTX). Warren Buffet loves IRM.
Geopolitics: In the Pak tribal lands, the Taliban is sending suicide bombers into the refugee camps the Pak Army has set up near its ongoing offensive, killing dozens of innocents. The Taliban doesn’t want non-combatant villagers to leave the battle zone for the safety of these camps but rather to stay and act as human shields. In the twisted calculus of the Long War this is a good sign. Previously the Taliban treated the refugee camps as recruiting stations, infiltrating them with a few senior bad guys who would talk young men into joining up. The Taliban is now so hated by the average tribesman there is no chance of recruiting refugees, only killing them.
Several weeks ago Afghan President Karzai threatened to join the Taliban unless he was allowed to pick all the members of an electoral watchdog group, which would let him rig the next election. The UN and Karzai have arrived at a compromise. Karzai can pick just enough watchdogs to semi-rig the election, enough to guarantee his victory but not walk away with it. This is also the kind of election that is occurring in Sudan and both are positive developments.
In Heavy fighting, 29 bad guys (including 2 commanders) have been killed in Northern Afghanistan over the past 4 days as NATO launches an offensive designed to secure its supply lines. NATO is also eliminating certain luxury items from its supply chain like pizzas and burgers. This emphasis on supply lines is a sign that the good guys are getting ready for the big Kandahar offensive.
Friday, April 16, 2010
Ronald Reagan Spinning In His Grave
Charts: The S&P 500 closed at 1192, down a whopping 1.6%. Support at 1200 was shattered in huge volume but 1190 held. Since only one support level was taken out the technical rally is still intact, but shaky.
Fundamentals: The SEC charged Goldman Sachs with fraud, just as the hideous financial reform bill was floundering; now it is certain to pass. Maybe a coincidence, but the timing smacks of an anti-bank witch hunt and is scaring the hell out of investors. Just as bad, President Obama signed another unemployment benefit extension into law, a step towards making this “temporary” benefit a permanent entitlement. The bill also torpedoes an automatic cut to Medicare and heaps on tons of miscellaneous pork. The refusal to cut Medicare today is strong evidence that the future cuts spelled out in the Obama-Care bill will never happen.
Geopolitics: In Pakistan’s Swat Valley, dancing parlors have reopened. For generations young women born into a sort of Muslim dancer caste have danced with men for money under heavy chaperonage and under strict rules that allow very little touching. The female dancers are also covered head to toe, of course. When the Taliban ruled the Swat Valley female dancers were brutally executed and tossed into the street. Dancing, music, and singing were all a death sentence. These activities have returned to the Swat Valley, proof that there are no Taliban left.
The Presidents of Russia and America, working closely together, have removed the deposed president of Kyrgyzstan to a neighboring country, averting a civil war. Since the ex-leader of Kyrgyzstan was a watered down Islamic bad guy, he would have certainly become a full fledged bad guy and drawn on Al-Qaeda support if a civil war had erupted. The war would have occurred 80 miles from Afghanistan. The consequences would have been earthshakingly bad. The two presidents were able to unite as a team because of the newly crafted START treaty. Republicans are determined to scuttle this treaty in the Senate. They are also doing everything possible to undermine Obama’s move to isolate Israel, principally by shifting focus to Iran and away from settlement building in E. Jerusalem. The Republicans are opposing the President’s “smart sanctions” (targeting Iran’s leaders) in favor of their own “stupid sanctions” (targeting average Iranians, leaving the leaders unscathed and fostering anti-American sentiment). As in the late 30s, the Republicans are promoting a toxic foreign policy that the President must overcome. What’s really sad is the Republicans aren’t doing anything to stop runaway government spending. So what good are they?
Fundamentals: The SEC charged Goldman Sachs with fraud, just as the hideous financial reform bill was floundering; now it is certain to pass. Maybe a coincidence, but the timing smacks of an anti-bank witch hunt and is scaring the hell out of investors. Just as bad, President Obama signed another unemployment benefit extension into law, a step towards making this “temporary” benefit a permanent entitlement. The bill also torpedoes an automatic cut to Medicare and heaps on tons of miscellaneous pork. The refusal to cut Medicare today is strong evidence that the future cuts spelled out in the Obama-Care bill will never happen.
Geopolitics: In Pakistan’s Swat Valley, dancing parlors have reopened. For generations young women born into a sort of Muslim dancer caste have danced with men for money under heavy chaperonage and under strict rules that allow very little touching. The female dancers are also covered head to toe, of course. When the Taliban ruled the Swat Valley female dancers were brutally executed and tossed into the street. Dancing, music, and singing were all a death sentence. These activities have returned to the Swat Valley, proof that there are no Taliban left.
The Presidents of Russia and America, working closely together, have removed the deposed president of Kyrgyzstan to a neighboring country, averting a civil war. Since the ex-leader of Kyrgyzstan was a watered down Islamic bad guy, he would have certainly become a full fledged bad guy and drawn on Al-Qaeda support if a civil war had erupted. The war would have occurred 80 miles from Afghanistan. The consequences would have been earthshakingly bad. The two presidents were able to unite as a team because of the newly crafted START treaty. Republicans are determined to scuttle this treaty in the Senate. They are also doing everything possible to undermine Obama’s move to isolate Israel, principally by shifting focus to Iran and away from settlement building in E. Jerusalem. The Republicans are opposing the President’s “smart sanctions” (targeting Iran’s leaders) in favor of their own “stupid sanctions” (targeting average Iranians, leaving the leaders unscathed and fostering anti-American sentiment). As in the late 30s, the Republicans are promoting a toxic foreign policy that the President must overcome. What’s really sad is the Republicans aren’t doing anything to stop runaway government spending. So what good are they?
Thursday, April 15, 2010
Long War Does Not Require Brute Force
Geopolitics: Gen. McChrystal has pulled all US soldiers and Marines out of the Korengal Valley, a remote mountainous enclave in northeastern Afghanistan nicknamed the valley of death. As is the case in nearby Nuristan province, Korengal has a strong tribal structure; neither Karzai’s government nor the Taliban hold sway over these fearsome tribesmen. When McChrystal pulled out of Nuristan, the tribes rose up and crushed the Taliban. This is likely to also occur in Korengal.
Indeed, anti-Taliban tribalism is the key to vanquishing the bad guys in Afpak. A tragic incident with the Pak Army illustrates this point. A Pak airstrike recently killed about 70 anti-Taliban tribesmen that were attacking a Taliban compound just as Pak jets were dropping their bombs. Obviously this is a huge blow to the war effort and shows how important intelligence is in the Long War. As good as Pak intelligence is it should have been better. The ISI should have known that good bad guys were attacking bad guys while the good guys were doing the same thing.
US intelligence officials are saying that Iran is closer to deploying nuclear weapons than previously thought, maybe 5 years away rather than 10. Opinion polls in the US show support for allowing Israel to launch an airstrike against Iranian weapon labs and installations. To have any hope of success, Israel would have to seize territory inside Saudi Arabia and build an airbase. This would magnify the Long War into a conventional war as big as WW II and shatter the world economy. A US airstrike against Iran wouldn’t be much better. The answer to the Iranian problem is for the US to strengthen its embryonic proto-alliance with Russia and allow our new ally to control Iran’s nuclear program. Iran can’t move forward without Russian help on nuclear weapons. The Iranian leadership must be turned into good bad guys through skillful American diplomacy with Russia. And on this score there is positive news, the situation in Kyrgyzstan is stabilizing and some cooperation is evident between Russia and the US. When Russia reinforced its airbase in Kyrgyzstan with elite Special Forces troops, the US humbly said it would start using an airbase in Kuwait to replace the Manas base in Kyrgyzstan, mollifying Russia. Now the Manas base is back in business. The Long War is not WW II. It requires smart chess playing, not brute force.
Indeed, anti-Taliban tribalism is the key to vanquishing the bad guys in Afpak. A tragic incident with the Pak Army illustrates this point. A Pak airstrike recently killed about 70 anti-Taliban tribesmen that were attacking a Taliban compound just as Pak jets were dropping their bombs. Obviously this is a huge blow to the war effort and shows how important intelligence is in the Long War. As good as Pak intelligence is it should have been better. The ISI should have known that good bad guys were attacking bad guys while the good guys were doing the same thing.
US intelligence officials are saying that Iran is closer to deploying nuclear weapons than previously thought, maybe 5 years away rather than 10. Opinion polls in the US show support for allowing Israel to launch an airstrike against Iranian weapon labs and installations. To have any hope of success, Israel would have to seize territory inside Saudi Arabia and build an airbase. This would magnify the Long War into a conventional war as big as WW II and shatter the world economy. A US airstrike against Iran wouldn’t be much better. The answer to the Iranian problem is for the US to strengthen its embryonic proto-alliance with Russia and allow our new ally to control Iran’s nuclear program. Iran can’t move forward without Russian help on nuclear weapons. The Iranian leadership must be turned into good bad guys through skillful American diplomacy with Russia. And on this score there is positive news, the situation in Kyrgyzstan is stabilizing and some cooperation is evident between Russia and the US. When Russia reinforced its airbase in Kyrgyzstan with elite Special Forces troops, the US humbly said it would start using an airbase in Kuwait to replace the Manas base in Kyrgyzstan, mollifying Russia. Now the Manas base is back in business. The Long War is not WW II. It requires smart chess playing, not brute force.
Wednesday, April 14, 2010
Free Market Fascism
Charts: The S&P 500 closed at 1211, up 1.1%. The index opened above the 1200 resistance level. In the morning it dropped and successfully tested 1200 and then rocked up, bullish chart action. Our next big Fibonacci resistance number is looming at 1240. This is also about where Goldman Sachs says fair value is for the broad index.
Specific Stocks: Singapore is led by a pro-capitalist dictator with a genius-level IQ (the Minister Mentor or MM). He only intervenes in the private sector to make individual companies more profitable. For instance, it is perfectly legal for Singapore Airlines to discriminate against men and average-looking women in favor of beautiful women when hiring flight attendants. But one day the MM noticed that some Singapore Girls weren’t properly filling out their uniforms, so he told the executives to hire even sexier attendants. The country needed a new airport and the only site was an ancient cemetery, revered by the locals. In a democracy the new airport wouldn’t get built. In Singapore the cemetery is bulldozed without fanfare. When western governments are making it quasi-illegal for banks to trade derivatives and slashing bank executive salaries, the MM sees an opportunity and builds a high speed electronic trading platform and offers overseas bank executives bonuses to poach talent from foolish rival countries.
Singapore’s government is a kind of pro-American Fascism. As was the case in Hitler’s Fascist Germany, Singapore practices Eugenics, the scientific breeding of people. Unlike Hitler, the MM doesn’t mindlessly select for eye and hair color, but intelligence, ambition, and multi-racial genetic diversity. Like the old school Fascists, MM spends more on his military as a percent of GDP than any other country and the result is an American ally with fearsome capability.
Does pure free market Fascism work? Last night Singapore announced its GDP grew in Q1 by a mind blowing 32.1%. Manufacturing output was up an unbelievable 139%. The Singapore index (EWS) was up 4% today.
It’s time to consider industrial late-bloomers, companies that will kick into gear at the mid-point in an industrial boom. Last time I broached this topic I mentioned GTI and HSC. Today let’s talk about Wabtec (WAB), a company that manufactures brakes for locomotives and railcars. WAB also makes entire locomotives and railroad signaling equipment. This is all stuff that wears out and needs replacing at the mid-point in a railroad boom. WAB has a big presence in China and India.
Specific Stocks: Singapore is led by a pro-capitalist dictator with a genius-level IQ (the Minister Mentor or MM). He only intervenes in the private sector to make individual companies more profitable. For instance, it is perfectly legal for Singapore Airlines to discriminate against men and average-looking women in favor of beautiful women when hiring flight attendants. But one day the MM noticed that some Singapore Girls weren’t properly filling out their uniforms, so he told the executives to hire even sexier attendants. The country needed a new airport and the only site was an ancient cemetery, revered by the locals. In a democracy the new airport wouldn’t get built. In Singapore the cemetery is bulldozed without fanfare. When western governments are making it quasi-illegal for banks to trade derivatives and slashing bank executive salaries, the MM sees an opportunity and builds a high speed electronic trading platform and offers overseas bank executives bonuses to poach talent from foolish rival countries.
Singapore’s government is a kind of pro-American Fascism. As was the case in Hitler’s Fascist Germany, Singapore practices Eugenics, the scientific breeding of people. Unlike Hitler, the MM doesn’t mindlessly select for eye and hair color, but intelligence, ambition, and multi-racial genetic diversity. Like the old school Fascists, MM spends more on his military as a percent of GDP than any other country and the result is an American ally with fearsome capability.
Does pure free market Fascism work? Last night Singapore announced its GDP grew in Q1 by a mind blowing 32.1%. Manufacturing output was up an unbelievable 139%. The Singapore index (EWS) was up 4% today.
It’s time to consider industrial late-bloomers, companies that will kick into gear at the mid-point in an industrial boom. Last time I broached this topic I mentioned GTI and HSC. Today let’s talk about Wabtec (WAB), a company that manufactures brakes for locomotives and railcars. WAB also makes entire locomotives and railroad signaling equipment. This is all stuff that wears out and needs replacing at the mid-point in a railroad boom. WAB has a big presence in China and India.
Tuesday, April 13, 2010
CIA Has Finger In Sudanese Pie
Charts: The S&P 500 closed at, 1197, up .07%. The index dropped in early going, hit support at 1190, and bounced up, good chart action. Resistance is at 1200. Yield on the ten-year note keeps going down (bullish for both stocks and bonds). Today is day 2 for the Dow trading above 11,000. Equity volume is horrible, but it must be horrible to support the bond market. Ultimately, geopolitics is supporting the US bond market.
Fundamentals: In 8 months the Bush tax cuts expire, the equivalent of a tax hike. And taxes will steadily rise every year after 2011 as far as the eye can see, choking the private sector. Businesses and individuals are bringing purchases, income, and activity forward into 2010 to beat the gathering tax tsunami, making hay while the sun shines. This will artificially juice the economy for the next few months. Someday there will be a hangover of epic proportion but for now the party continues.
Geopolitics: VP Joe Biden has a big mouth, lucky for us. Biden says that Iraqi Intelligence has not cooperated closely with the CIA in the past but is changing gears and reaching out to its American sister agency. Last week Iraqi counterterrorism operations increased fourfold. After the big election, Al-Qaeda in Iraq launched several big terror strikes against both Sunni and Shiite targets, an attempt to reignite sectarian war. It didn’t work and only forced the good guys to get serious about hunting down the bad guys.
The loser of the election, Maliki, tried several anti-democratic moves to cling to power such as a rigged vote recount and disqualifying candidates he doesn’t like by claiming they are former Baathists. Grand Ayatollah Sistani says he won’t put up with this nonsense and that effectively ends it since defying the Grand Ayatollah would be suicide for Maliki.
It’s almost as if the CIA has handpicked Allawi as the next leader of Iraq. There is evidence that the same thing is happening in the impending elections in Sudan. Jimmy Carter is in Sudan monitoring these elections. The former President says the election is shaping up to be reasonably honest and the current Islamist dictator (a good bad guy), al-Bashir, is likely to win. Al-Bashir is supposedly willing to allow a referendum in a few months that will see southern Sudan split off and form a separate country, which should end the nearly century-long Sudanese civil war. Al-Bashir’s enemies uniformly call him a “CIA stooge,” that plus the fact he is pursuing a host of pro-American policies is strong evidence that the Agency has a finger in the pie.
And the CIA is doing a good job along the Afpak border region where one of its drones killed 5 Taliban leaders yesterday. While the Hellfire missiles were flying, the Pak Army was busy killing several dozen bad guys up and down the length of the border region, a daily occurrence.
Specific Stocks: Private equity firm Cerberus bought small defense company DynCorp yesterday, paying a 50% premium. DynCorp is levered to the Long War. Cerberus is saying that the Long War will last a long time. ITT and CUB are similar to DynCorp. And don’t forget RTN (my favorite).
I am building a position in LTD, maker of Victoria’s Secret lingerie and Body Works. For years LTD wouldn’t make plus size woman’s apparel. It does so now but with the illusion that it does not. Lulu Lemon (LULU, maker of high end women’s athletic apparel) is also pursuing this strategy, to great success. LTD has strong value metrics such as cash flow.
Fundamentals: In 8 months the Bush tax cuts expire, the equivalent of a tax hike. And taxes will steadily rise every year after 2011 as far as the eye can see, choking the private sector. Businesses and individuals are bringing purchases, income, and activity forward into 2010 to beat the gathering tax tsunami, making hay while the sun shines. This will artificially juice the economy for the next few months. Someday there will be a hangover of epic proportion but for now the party continues.
Geopolitics: VP Joe Biden has a big mouth, lucky for us. Biden says that Iraqi Intelligence has not cooperated closely with the CIA in the past but is changing gears and reaching out to its American sister agency. Last week Iraqi counterterrorism operations increased fourfold. After the big election, Al-Qaeda in Iraq launched several big terror strikes against both Sunni and Shiite targets, an attempt to reignite sectarian war. It didn’t work and only forced the good guys to get serious about hunting down the bad guys.
The loser of the election, Maliki, tried several anti-democratic moves to cling to power such as a rigged vote recount and disqualifying candidates he doesn’t like by claiming they are former Baathists. Grand Ayatollah Sistani says he won’t put up with this nonsense and that effectively ends it since defying the Grand Ayatollah would be suicide for Maliki.
It’s almost as if the CIA has handpicked Allawi as the next leader of Iraq. There is evidence that the same thing is happening in the impending elections in Sudan. Jimmy Carter is in Sudan monitoring these elections. The former President says the election is shaping up to be reasonably honest and the current Islamist dictator (a good bad guy), al-Bashir, is likely to win. Al-Bashir is supposedly willing to allow a referendum in a few months that will see southern Sudan split off and form a separate country, which should end the nearly century-long Sudanese civil war. Al-Bashir’s enemies uniformly call him a “CIA stooge,” that plus the fact he is pursuing a host of pro-American policies is strong evidence that the Agency has a finger in the pie.
And the CIA is doing a good job along the Afpak border region where one of its drones killed 5 Taliban leaders yesterday. While the Hellfire missiles were flying, the Pak Army was busy killing several dozen bad guys up and down the length of the border region, a daily occurrence.
Specific Stocks: Private equity firm Cerberus bought small defense company DynCorp yesterday, paying a 50% premium. DynCorp is levered to the Long War. Cerberus is saying that the Long War will last a long time. ITT and CUB are similar to DynCorp. And don’t forget RTN (my favorite).
I am building a position in LTD, maker of Victoria’s Secret lingerie and Body Works. For years LTD wouldn’t make plus size woman’s apparel. It does so now but with the illusion that it does not. Lulu Lemon (LULU, maker of high end women’s athletic apparel) is also pursuing this strategy, to great success. LTD has strong value metrics such as cash flow.
Monday, April 12, 2010
Democracy Is Good For Iraq
Geopolitics: While pushing democracy on Afghanistan and Somalia is a bad idea, democracy is working like a charm in Iraq. The CIA’s good buddy, Allawi, won the recent election by a whisker and he is cobbling together a coalition government, a process that will take a couple months. Allawi made two brilliant moves after the election: 1) He said the multitudinous oil contracts that his predecessor had hammered out with the world’s major energy companies will not be changed even though in the campaign he promised to scrap these deals and negotiate better ones. The existing contracts cannot be improved upon and can only be scrapped or left alone. If left alone, these contracts will increase Iraqi oil production by 12 times over the next 10 years, making Iraq the largest oil exporter in the world. The global recovery cannot continue without cheap oil. 2) Allawi reached out to the Iranian leadership and told them America will never launch an attack against Iran from Iraqi territory. The CIA maintains an anti-Iranian guerilla army in an encampment along the Iran/Iraq border; this would be the source of a US attack. With his vast CIA connections, Allawi is in a position to make good on such a promise. Shiite Iran now publically supports Allawi’s pro-Sunni political party, tacitly endorsing it as the leader in the coalescing jumble of parties that will form the new government. Iran’s former darling, Maqtada al-Sadr, is now sidelined. This is important because when Allawi was Prime Minister of Iraq the first time he (successfully) ordered the Iraqi Army to crush al-Sadr’s radical Shiite Mahdi Army, so the two men hate each other. Without Iranian backing al-Sadr should be toothless.
The Pak Army is killing an average of 15 bad guys a day starting a little more than three weeks ago. This offensive isn’t getting a lot of press but we must remember that the Taliban is like any other army or militia: kill enough bad guy fighters and the bad guys will lose the war. The Pak Army is executing a powerful offensive against the Taliban while at the same time running a large mechanized war game exercise on the Indian border. Backed by its superpower buddy, the Pak Army is a colossus, one of the largest, most effective and powerful armies on Earth.
The Pak Army is killing an average of 15 bad guys a day starting a little more than three weeks ago. This offensive isn’t getting a lot of press but we must remember that the Taliban is like any other army or militia: kill enough bad guy fighters and the bad guys will lose the war. The Pak Army is executing a powerful offensive against the Taliban while at the same time running a large mechanized war game exercise on the Indian border. Backed by its superpower buddy, the Pak Army is a colossus, one of the largest, most effective and powerful armies on Earth.
Friday, April 9, 2010
Russia & USA Must Prevent Civil War
Charts: The S&P 500 closed at 1194, up .7%. Resistance at 1190 was finally breached. The broad index crossed 1190 eight times today. Over the past few days it has repeatedly fought in and out of this battlefield resistance level. A hard fought battle like this is good chart action. Yield on the 10-year note was down today. It is retreating down away from 3.95%, so this resistance level is holding firm, good news.
Fundamentals: The short confession season is over and the long earnings season starts on Monday. The confession season is usually a very accurate predictor of the earnings season and since this confession season was about twice as strong as historical norms it is a safe bet that earnings season will also be very good. Nobody cares. The market is going up and down based on the prospects of Greece getting bailed out. Today the news (rumors) is that Greece will get bailed out after all; hence the rally.
Geopolitics: The government of Kyrgyzstan was overthrown two days ago by pro-democracy rebels. The rebel’s interim government has control over the army and the northern part of the country. It has only spotty control over the south and some parts of the national police force. The ousted president is holed up in the south, trying to gather enough firepower to start a civil war and retake control of the country.
Kyrgyzstan is sharply divided between the south and north. The south is poor, agrarian, Islamic, anti-Russian, and anti-democratic. The north is wealthier, industrialized, anti-Islamic, pro-Russian, and pro-democratic. The interim government is pro-American (since it is pro-democratic) and pro-Russian at the same time.
America’s gigantic Manos air base is in Kyrgyzstan, the most important supply base for the Afghan war, vital to the war effort. Russia also has a big air base in the country, which it is now reinforcing with elite troops. While the Kyrg. government was being overthrown, Russia and America were busy signing the new START treaty, marking the beginning of a proto-alliance. A full scale civil war will erupt in Kyrgyzstan unless Russia and America work together, a test of the proto-alliance. If the two great powers pass the test, it will be bullish; if not, very bearish and here’s why: Aborting the embryonic Russo-American proto-alliance will push Iran and Russia back into each others’ arms, shut down the flow of supplies to the USMC as it starts the big offensive in Kandahar, and heat up the already hot Islamic insurgency in Russia’s Caucasus region.
Specific Stocks: Don’t count your chickens before they hatch. Boeing thinks it is waltzing away with the $100 billion Air Force refueling tanker deal. EADS (A.K.A Airbus) is getting ready to put together a new competitive bid after its last one was shot down. The financial press reported that the Boeing proposal was favored over EADS because Boeing’s planes would be cheaper (dummies). As you will recall, this newsletter reported that Boeing’s proposal was actually favored because it featured superior anti-missile capability against Iran. In preparation for its new bid, EADS is talking to Raytheon (RTN) about forming a partnership and designing the new tanker together. Boeing is very good at anti-missile technology. Raytheon is better than Boeing. Raytheon is better than anybody.
Fundamentals: The short confession season is over and the long earnings season starts on Monday. The confession season is usually a very accurate predictor of the earnings season and since this confession season was about twice as strong as historical norms it is a safe bet that earnings season will also be very good. Nobody cares. The market is going up and down based on the prospects of Greece getting bailed out. Today the news (rumors) is that Greece will get bailed out after all; hence the rally.
Geopolitics: The government of Kyrgyzstan was overthrown two days ago by pro-democracy rebels. The rebel’s interim government has control over the army and the northern part of the country. It has only spotty control over the south and some parts of the national police force. The ousted president is holed up in the south, trying to gather enough firepower to start a civil war and retake control of the country.
Kyrgyzstan is sharply divided between the south and north. The south is poor, agrarian, Islamic, anti-Russian, and anti-democratic. The north is wealthier, industrialized, anti-Islamic, pro-Russian, and pro-democratic. The interim government is pro-American (since it is pro-democratic) and pro-Russian at the same time.
America’s gigantic Manos air base is in Kyrgyzstan, the most important supply base for the Afghan war, vital to the war effort. Russia also has a big air base in the country, which it is now reinforcing with elite troops. While the Kyrg. government was being overthrown, Russia and America were busy signing the new START treaty, marking the beginning of a proto-alliance. A full scale civil war will erupt in Kyrgyzstan unless Russia and America work together, a test of the proto-alliance. If the two great powers pass the test, it will be bullish; if not, very bearish and here’s why: Aborting the embryonic Russo-American proto-alliance will push Iran and Russia back into each others’ arms, shut down the flow of supplies to the USMC as it starts the big offensive in Kandahar, and heat up the already hot Islamic insurgency in Russia’s Caucasus region.
Specific Stocks: Don’t count your chickens before they hatch. Boeing thinks it is waltzing away with the $100 billion Air Force refueling tanker deal. EADS (A.K.A Airbus) is getting ready to put together a new competitive bid after its last one was shot down. The financial press reported that the Boeing proposal was favored over EADS because Boeing’s planes would be cheaper (dummies). As you will recall, this newsletter reported that Boeing’s proposal was actually favored because it featured superior anti-missile capability against Iran. In preparation for its new bid, EADS is talking to Raytheon (RTN) about forming a partnership and designing the new tanker together. Boeing is very good at anti-missile technology. Raytheon is better than Boeing. Raytheon is better than anybody.
Wednesday, April 7, 2010
Islamic Dictatorship Is Good
Charts: The S&P 500 closed at 1182, down .6%. Resistance for the broad index is stiff at 1190. Resistance for the Dow is even stiffer at 11,000. But yield on the 10-year note broke through support at 3.95%, which is helpful. Yesterday the VIX (fear gauge) hit a 2 ½ year low, signaling complacency.
Fundamentals: Fear of Greek debt default has flared up again. This is pushing yield on the US treasury 10-year note lower, which is both good and bad, or to put it another way—the threat of Greece defaulting is okay but an actual default would be catastrophic. China is getting ready to allow its currency to rise; again a mixed bag. It will help America and other countries export into China but it means China will buy less American debt and since Congress is still ramping up spending, interest rates will eventually be forced up. Also, any hint of China tightening terrifies investors.
Geopolitics: Afghan President Karzai’s recent behavior isn’t that bizarre if we review Afghan history. The initial US invasion after 9/11 was led by the CIA. The Agency entered the country with suitcases stuffed with hundreds of millions of dollars. The Taliban’s arch-enemy, the Northern Alliance (NA), was given weapons, leadership from Special Forces, and cash. After the NA crushed the bad guys, the strongest war lord in every little valley was given gobs of CIA cash so long as he adopted an anti-Taliban stance. The CIA’s original idea was to build a government around the war lords and the Northern Alliance led by Karzai, who is a Pushtun with long standing ties to the CIA. The Taliban are also Pushtun. Very few Northern Alliance members are Pushtun, so Karzai was the right choice.
The original plan worked great until it was screwed with. The IMF says that in 2004 Afghanistan’s GDP grew by 30%, faster than any other country. With the CIA in charge, the war lords were getting rich and the Taliban was being rooted out. Then the Bush Administration began an anti-war lord campaign, an anti-opium campaign (source of GDP growth), and the first presidential election was held. The result was that opium continued to be produced but the money went to a newly invigorated Taliban, not US allied war lords. The economy fell apart. It will be hard to put the genie back in the bottle; i.e., put the CIA in charge of a tribal based war lord alliance.
Recent events in Somalia illustrate a lesson learned from the mistakes made in Afghanistan. Right now Al-Shabab is engaged in heavy fighting with CIA backed Islamic militia Ahlu Sunnah. The war has been flaring up in Somalia for several days now. Al Shabab has lost every battle fought against Ahlu Sunnah so far. The CIA has been quietly letting Ahlu Sunnah take over the Somali government. A Sufi Islamic dictatorship is evolving in Somalia (how undemocratic!). None of this is being reported by the Western media and that’s why the policy is working.
Fundamentals: Fear of Greek debt default has flared up again. This is pushing yield on the US treasury 10-year note lower, which is both good and bad, or to put it another way—the threat of Greece defaulting is okay but an actual default would be catastrophic. China is getting ready to allow its currency to rise; again a mixed bag. It will help America and other countries export into China but it means China will buy less American debt and since Congress is still ramping up spending, interest rates will eventually be forced up. Also, any hint of China tightening terrifies investors.
Geopolitics: Afghan President Karzai’s recent behavior isn’t that bizarre if we review Afghan history. The initial US invasion after 9/11 was led by the CIA. The Agency entered the country with suitcases stuffed with hundreds of millions of dollars. The Taliban’s arch-enemy, the Northern Alliance (NA), was given weapons, leadership from Special Forces, and cash. After the NA crushed the bad guys, the strongest war lord in every little valley was given gobs of CIA cash so long as he adopted an anti-Taliban stance. The CIA’s original idea was to build a government around the war lords and the Northern Alliance led by Karzai, who is a Pushtun with long standing ties to the CIA. The Taliban are also Pushtun. Very few Northern Alliance members are Pushtun, so Karzai was the right choice.
The original plan worked great until it was screwed with. The IMF says that in 2004 Afghanistan’s GDP grew by 30%, faster than any other country. With the CIA in charge, the war lords were getting rich and the Taliban was being rooted out. Then the Bush Administration began an anti-war lord campaign, an anti-opium campaign (source of GDP growth), and the first presidential election was held. The result was that opium continued to be produced but the money went to a newly invigorated Taliban, not US allied war lords. The economy fell apart. It will be hard to put the genie back in the bottle; i.e., put the CIA in charge of a tribal based war lord alliance.
Recent events in Somalia illustrate a lesson learned from the mistakes made in Afghanistan. Right now Al-Shabab is engaged in heavy fighting with CIA backed Islamic militia Ahlu Sunnah. The war has been flaring up in Somalia for several days now. Al Shabab has lost every battle fought against Ahlu Sunnah so far. The CIA has been quietly letting Ahlu Sunnah take over the Somali government. A Sufi Islamic dictatorship is evolving in Somalia (how undemocratic!). None of this is being reported by the Western media and that’s why the policy is working.
Tuesday, April 6, 2010
Democracy Is Bad For Afghanistan
Charts: The S&P 500 closed at 1189, up .2% on the day and 1% on the week. Resistance is at 1190. The Dow is facing stiff resistance at 11,000, which is holding the broad index back. Yield on the 10-year note blew past resistance of 3.95% Monday (scary) but fortunately the 4% danger zone is providing substantial resistance so far. The charts are bullish so long as yield on the ten-year stays under control.
Fundamentals: Since the beginning of the year, the government’s household survey shows the US economy created 1.1 million jobs. The payroll survey on the other hand shows a net loss of jobs. The household survey is more accurate because it captures small and micro-sized businesses, which the payroll survey ignores. The household survey also shows discouraged unemployed workers looking for jobs in huge numbers, this is a first since the recovery began a year ago and a sign that the labor markets are turning around. The Senate and the House have both passed extensions to unemployment benefits but are unable to reconcile the two different bills. If they can’t reconcile, then unemployment extensions will stop. Discouraged workers will only keep looking for jobs if benefits dry up. This very much needs to happen for the recovery to continue.
Geopolitics: For 1979 to 1989, the Soviets occupied Afghanistan and deliberately weakened the country’s tribal structure. From the early 90s to 2001, the Taliban did the same thing, systematically weakened the tribes. After 2001, the Bush Administration and the Taliban each controlled different parts of the country and they both continued weakening the tribes for different reasons. For 30 years the Afghan tribes have been eviscerated and enfeebled. For America to win its war, Afghanistan needs to develop back into a tribal society, then a feudal society, and someday in the distant future: democratic capitalism.
President Karzai is calling the US Army an occupying force and threatening to join the Taliban if he isn’t allowed to run phony-baloney rigged elections. Karzai (rightfully) hates democracy and wants to be a tribal overlord. Unfortunately, Afghan tribalism can only be built from the bottom up, not the top down. The USMC is doing just that in Marja, where they pay money directly to local tribal leaders who then disburse it within their clan. Fearful of the strengthening effect this has on Marja’s tribal structure, the Taliban tries to kill any tribal leader who accepts money from the Marines. In central Marja, the tribal leaders are safe and tribal structures are firming up. In northern Marja, a large percentage of the local leaders are being killed or brutalized.
Here is proof that everything depends on rebuilding Afghan’s tribes and not holding any more elections: In the most remote northeastern corner of the country there is a province called Nuristan where the tribes were never destroyed, not even the British in the 19th century could scratch these fiercely independent tribesmen. In a brilliant move, a few months ago, General McChrystal pulled all NATO forces out of Nuristan. Within short order the Nuristani killed every Taliban fighter in their province. If every Afghan province had tribes as strong as those in Nuristan, the Taliban would cease to exist in about 2 months. Elections massively hinder this goal.
Karzai needs to be mollified by having elections indefinitely postponed. Obama knows this and can hopefully keep Congress and the UN out of the loop.
Fundamentals: Since the beginning of the year, the government’s household survey shows the US economy created 1.1 million jobs. The payroll survey on the other hand shows a net loss of jobs. The household survey is more accurate because it captures small and micro-sized businesses, which the payroll survey ignores. The household survey also shows discouraged unemployed workers looking for jobs in huge numbers, this is a first since the recovery began a year ago and a sign that the labor markets are turning around. The Senate and the House have both passed extensions to unemployment benefits but are unable to reconcile the two different bills. If they can’t reconcile, then unemployment extensions will stop. Discouraged workers will only keep looking for jobs if benefits dry up. This very much needs to happen for the recovery to continue.
Geopolitics: For 1979 to 1989, the Soviets occupied Afghanistan and deliberately weakened the country’s tribal structure. From the early 90s to 2001, the Taliban did the same thing, systematically weakened the tribes. After 2001, the Bush Administration and the Taliban each controlled different parts of the country and they both continued weakening the tribes for different reasons. For 30 years the Afghan tribes have been eviscerated and enfeebled. For America to win its war, Afghanistan needs to develop back into a tribal society, then a feudal society, and someday in the distant future: democratic capitalism.
President Karzai is calling the US Army an occupying force and threatening to join the Taliban if he isn’t allowed to run phony-baloney rigged elections. Karzai (rightfully) hates democracy and wants to be a tribal overlord. Unfortunately, Afghan tribalism can only be built from the bottom up, not the top down. The USMC is doing just that in Marja, where they pay money directly to local tribal leaders who then disburse it within their clan. Fearful of the strengthening effect this has on Marja’s tribal structure, the Taliban tries to kill any tribal leader who accepts money from the Marines. In central Marja, the tribal leaders are safe and tribal structures are firming up. In northern Marja, a large percentage of the local leaders are being killed or brutalized.
Here is proof that everything depends on rebuilding Afghan’s tribes and not holding any more elections: In the most remote northeastern corner of the country there is a province called Nuristan where the tribes were never destroyed, not even the British in the 19th century could scratch these fiercely independent tribesmen. In a brilliant move, a few months ago, General McChrystal pulled all NATO forces out of Nuristan. Within short order the Nuristani killed every Taliban fighter in their province. If every Afghan province had tribes as strong as those in Nuristan, the Taliban would cease to exist in about 2 months. Elections massively hinder this goal.
Karzai needs to be mollified by having elections indefinitely postponed. Obama knows this and can hopefully keep Congress and the UN out of the loop.
Saturday, April 3, 2010
It Pays To Lose A War
Geopolitics: Since Thursday the Israeli Air Force has attacked five different sites in the Gaza Strip, laying down heavy barrages of bombs and missiles. At the same time, Hamas is firing rockets into Israel; a mini-war is raging in this theater of the Long War. Who are the good guys? The answer: both sides will probably end up being good guys eventually. Here’s why…
On Friday word leaked out that President Obama has “unofficially” been sending retired American ambassadors to meet and negotiate with the leaders of Hamas over the past few months; America has never done this before. Along the same lines, a currently employed (but on vacation) US diplomat met with a Hamas leader in London for a debate sponsored by the Al Jazeera TV channel, a move bordering on diplomatic recognition. Obama is also sending Sen. John Kerry to negotiate with the president of Syria. The US is reaching out to its former Arab enemies in the Israeli/Arab dispute and turning them into friends. Israel, in turn, will become an American enemy unless it switches gears.
Israel might be grabbing the shifter despite its aggression in Gaza. On Friday and Saturday, violence flared in the West Bank as Israeli settlers began a series of demonstrations designed to trigger a violent reaction from the Palestinians and force the Israeli Army to shed Arab blood. The Israeli Army clashed with Palestinians, as we might expect, but it also clashed with the settlers, the undisputed bad guys in the whole mess.
The Israeli Army firing rubber bullets on West Bank settlers is bullish. If Israel is humiliated in its mini-war with Hamas as it was in its war against Hezbollah/Lebanon in 2006, then the Israeli stock market will rock upward. This leads us to a broader principle: any war that results in American interests prevailing is bullish for stocks and the opposite is also true.
If a country wins a war that America wants it to lose, then that country’s stock market will collapse. For instance, Russia won a war against Georgia and Russia’s stock market fell a staggering 75%. What if a country loses a war that America wants it to lose? Iran has in fact been losing its long running cold war against the West and its losses are getting worse. Recently, Russia is starting to lean against Iran. This means more sanctions. That should clobber Iran’s stock market. But Iranian stocks are soaring. It pays to lose a war against the US. Just ask Germany and Japan.
On Friday word leaked out that President Obama has “unofficially” been sending retired American ambassadors to meet and negotiate with the leaders of Hamas over the past few months; America has never done this before. Along the same lines, a currently employed (but on vacation) US diplomat met with a Hamas leader in London for a debate sponsored by the Al Jazeera TV channel, a move bordering on diplomatic recognition. Obama is also sending Sen. John Kerry to negotiate with the president of Syria. The US is reaching out to its former Arab enemies in the Israeli/Arab dispute and turning them into friends. Israel, in turn, will become an American enemy unless it switches gears.
Israel might be grabbing the shifter despite its aggression in Gaza. On Friday and Saturday, violence flared in the West Bank as Israeli settlers began a series of demonstrations designed to trigger a violent reaction from the Palestinians and force the Israeli Army to shed Arab blood. The Israeli Army clashed with Palestinians, as we might expect, but it also clashed with the settlers, the undisputed bad guys in the whole mess.
The Israeli Army firing rubber bullets on West Bank settlers is bullish. If Israel is humiliated in its mini-war with Hamas as it was in its war against Hezbollah/Lebanon in 2006, then the Israeli stock market will rock upward. This leads us to a broader principle: any war that results in American interests prevailing is bullish for stocks and the opposite is also true.
If a country wins a war that America wants it to lose, then that country’s stock market will collapse. For instance, Russia won a war against Georgia and Russia’s stock market fell a staggering 75%. What if a country loses a war that America wants it to lose? Iran has in fact been losing its long running cold war against the West and its losses are getting worse. Recently, Russia is starting to lean against Iran. This means more sanctions. That should clobber Iran’s stock market. But Iranian stocks are soaring. It pays to lose a war against the US. Just ask Germany and Japan.
Thursday, April 1, 2010
Please Trust CIA
Charts: The S&P 500 closed at 1178, up .7%. The broad index has tested support successfully at 1170 several times over the past few days, good chart action. FXI (Chinese blue chip index) is trading well above its 200-day moving average, bullish for emerging markets. Oil has broken up above $83 a barrel. This is a problem. Yield on the 10-year note is trading below 3.95%, so good so far.
Fundamentals: Industrial data from every major economy came in stronger than expected, led by China. About 45% of the world’s steel is consumed by China but Chinese buildings do not have enough steel in them because of weak building codes and corrupt code enforcement. China will soon consume 50% of the world’s steel. The rest of emerging Asia needs more steel as well. SLX (the steel index) is up 31% in the last six months. Graftech (GTI) is down 4% over that time period. GTI makes the multi-ton graphite electrodes and graphite kiln liners used in electric arc steel mills: they wear out and need replacing at the midpoint in a steel boom, not the early phase. So GTI is a late bloomer. Harsco (HSC) is a steel mill service provider, also a late bloomer.
Geopolitics: In Pakistan’s tribal lands near NATO supply lines, the Taliban attacked two Pak Army forts in platoon-sized units that featured guns, rockets, and explosive laden suicide vehicles, conventional warfare tactics. 25 bad guys were killed. 6 good guys were killed and 30 seriously wounded.
In Indian held Kashmir, over the past few days there have been 3 battles between Taliban fighters and the Indian Army resulting in 4 dead Indian soldiers and 12 dead bad guys. We are seeing the Taliban going on the offensive and racking up surprisingly high kill ratios.
In N. Waziristan, CIA drones killed 6 bad guys. We don’t know if these bad guys are members of the N. Waziristan Taliban (Hezb-e-Islami) but we do know that the N. Waziristan Taliban met with Karzai’s government Tuesday for more peace talks and that the CIA is trying to literally blow apart these negotiations with Hellfire missiles. Yesterday’s drone strikes hit an abandoned school and a compound owned by local tribesmen (not owned by the Taliban). Therefore, whoever is being targeted by the CIA is on the run, digging down deep, acting as if they have been hit many times before. So it probably is the peace-talking N. Waziristan Taliban. The US State Dept. and Army are more tolerant of these peace talks than the CIA. But consider: The N. Waziristan Taliban has far deeper CIA ties than any other Taliban. These ties were developed during the 80s in the Afghan war against the Soviets. So the CIA knows the N. Waziristan Taliban much better than the State Dept. or Army. We should trust the CIA’s judgment.
Fundamentals: Industrial data from every major economy came in stronger than expected, led by China. About 45% of the world’s steel is consumed by China but Chinese buildings do not have enough steel in them because of weak building codes and corrupt code enforcement. China will soon consume 50% of the world’s steel. The rest of emerging Asia needs more steel as well. SLX (the steel index) is up 31% in the last six months. Graftech (GTI) is down 4% over that time period. GTI makes the multi-ton graphite electrodes and graphite kiln liners used in electric arc steel mills: they wear out and need replacing at the midpoint in a steel boom, not the early phase. So GTI is a late bloomer. Harsco (HSC) is a steel mill service provider, also a late bloomer.
Geopolitics: In Pakistan’s tribal lands near NATO supply lines, the Taliban attacked two Pak Army forts in platoon-sized units that featured guns, rockets, and explosive laden suicide vehicles, conventional warfare tactics. 25 bad guys were killed. 6 good guys were killed and 30 seriously wounded.
In Indian held Kashmir, over the past few days there have been 3 battles between Taliban fighters and the Indian Army resulting in 4 dead Indian soldiers and 12 dead bad guys. We are seeing the Taliban going on the offensive and racking up surprisingly high kill ratios.
In N. Waziristan, CIA drones killed 6 bad guys. We don’t know if these bad guys are members of the N. Waziristan Taliban (Hezb-e-Islami) but we do know that the N. Waziristan Taliban met with Karzai’s government Tuesday for more peace talks and that the CIA is trying to literally blow apart these negotiations with Hellfire missiles. Yesterday’s drone strikes hit an abandoned school and a compound owned by local tribesmen (not owned by the Taliban). Therefore, whoever is being targeted by the CIA is on the run, digging down deep, acting as if they have been hit many times before. So it probably is the peace-talking N. Waziristan Taliban. The US State Dept. and Army are more tolerant of these peace talks than the CIA. But consider: The N. Waziristan Taliban has far deeper CIA ties than any other Taliban. These ties were developed during the 80s in the Afghan war against the Soviets. So the CIA knows the N. Waziristan Taliban much better than the State Dept. or Army. We should trust the CIA’s judgment.
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