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.