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.