CIA Doing Better

Charts: Last week's gigantic rally came on volume that was the lowest yet for the current bull market. Volume could be described as paper thin, very fragile. As such the market desperately needs to consolidate, e.i. trade flat to slightly up. Since it breached the key level of 1333, it needs to consolidate above that level.

Fundamentals: The big American rating agencies recently downgraded Euro-periphery debt. This should have sent the Dow down 1000 points. But counter-intuitively it ignited a fire under the Germans and the European troika charged with bailing out the weak Euro countries. The Germans are essentially saying, "Nobody is allowed to beat up my little brother, except me." The Germans have so far put together a Mickey Mouse bail out package. But today they are so insulted by the Americans calling their little brother (Greece and Portugal) an insolvent mess, they are (perhaps) gearing up to mount a more serious bail out effort. This is good news but the Euro-debt problem is still a huge mess that could tear down the world economy. Credit markets are saying there is an 85% chance Greece will default and 59%chance Portugal will also. The ultimate solution is for the EU to guarantee all of Greece's debt and then have the Germans run an expanded privatization program. Guaranteeing Greece's debt would slash the interest rates it has to pay to service its debt. The current bail out locks in super high interest rates, which will definitely cause a default in time. The current bail out program is a typical "Extend and Pretend" gimmick similar to how Japan's zombie banks dealt with bad loans. It will not work.

Long War: The CIA is over-stretched and having a hard time fighting everywhere in the global war against Islamic bad guys but in Libya the situation is looking better. In Tripoli (Gaddafi's only real stronghold) the night is filled with armed revolutionaries attacking police check points. During the day Gaddafi's secret police comb neighborhoods and arrest suspected insurgents. But the next night the good guys are only stronger. This is a sort of new front in the war and it bears Agency fingerprints.

The rebels have mounted a co-ordinated two pronged assault on Gaddafi's army from Misrata and the western mountains. The strongest rebel force and the one doing Gaddafi the most damage is the Berber tribesmen in the western mountains. There are reports of Qatar and France arming these rebels and while these reports are certainly true the activation of a non-Arab tribal fighting force is classic CIA tactics. In a broader historical context, this divide and conquer tactic is also what the British East India Company would have done and when we see actions that look imperial it speaks to CIA involvement. Furthermore, the co-ordination of the Free Libya Army in Misrata with the Berber tribe speaks to an outside force directing a larger overall strategy.