Senators Lick Their Wounds

Charts: The S&P 500 closed above 1300, which is the 50% retracement of the recent correction. Stock prices say we are now in a technical rally but volume patterns say we are not. The entire bull market over the past couple years has shown strong price action and weak volume.

Fundamentals: Jobless claims came in weaker than expected. Oil popped up so overall fundamentals continue to suck. The market of course is fixated on Greece, and nothing else. The Greek Parliament voted for the austerity bill with a wide enough margin to assure Tomorrow's vote on specific spending cuts will go through. Investors are apparently hoping that Greece will be permanently bailed out by Germany and the troika in the same way that Fannie Mae and Freddie Mac are being permanently bailed out by the US Treasury. For this to happen Greece will have to actually implement all aspects of the austerity package. Remember, there was an earlier austerity package a year ago and Greece did not implement it. Perhaps with the Germans breathing down Greece's neck it will do a better job this time. Since the austerity package is flawed, Greece will continue to flounder in a horrible recession, living through a sort of economic purgatory. Other peripheral Euro-zone countries will see this and perhaps make free market reforms to avoid Greece's fate.

Long War: General Petraeus has hung up his uniform and quit the Army. Soon he will take over the CIA. He was considered the most politically astute general of our times and the most media savvy. In Iraq he was able to muzzle the media by (in essence) threatening to not protect embedded reports as they went on combat patrols with US troops. What the CIA needs to do in Afghanistan is not a mystery to Petraeus or the existing CIA leadership. The trick is to get Congress and the media out of the loop so they will be able act freely. Can he do it?

Petraeus' confirmation hearing in the Senate was encouraging. The Senators latched onto the fact that the general disagreed with Obama's sharp troop reduction call in Afghanistan. They tried to get Petraeus to say he would resign from the Army over this disagreement if he weren't going to the CIA. The general was prepared for this nonsense and made a stirring speech about how the privates in the line of fire can't resign, commanders also should never resign, and even suggesting it was unpatriotic to bring the subject up. The speech wound up in the media and made the Senators look bad. They were licking their wounds after the hearing and are probably eager to avoid confronting the new head spook again. A good start.