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.