Turkey Steps Up

Charts: The S&P 500's 200-day moving average is between 1264-1267. The 50-day is 1224. The index is currently below both moving averages and since the 50-day is below the 200-day the index is still experiencing a death cross. An honest look at the charts indicates that we are in a bear market. So we have a new set of Fibonacci retracement levels. 1210-1212 is the new 50% retracement. So far today the index is finding support at this level, which is obviously good. Volatility is still increasing. To reach the all time high set on January 9 2009 volatility will have to increase by about 30%. After the all time peak in early 2009 volatility (as measured by EV) fell from 194% to 20%. Never in the history of the stock market has there been a lengthy bull run with volatility this high. It probably needs to go higher, but then it needs to dramatically collapse. If it stabilizes at a relatively high level we will have a few more years of bear market.

Fundamentals: The Greek economy is contracting at 5.6% (annualized) rate. The Irish economy is expanding at 1.5%. The two were the first Euro-periphery countries to get into trouble and have since then put austerity budgets in place. The Irish government also launched huge free market reforms and enjoys the broad support of voters. Greece has not put free market reforms in place and its people don't support anything the government is doing. Italy is traveling the same path as Greece, not Ireland. Meanwhile, financial markets want only one thing: ECB quantitative easing, where the European Central Bank prints money out of thin air and buys billions of dollars (euros) worth of Italian debt. If this happens without Italy taking the path of Ireland, then the long term outlook will be very dark. So the markets are wrong (long term). At this point an investor should probably not fight the markets and buy stocks whenever the ECB says QE is off the table on the belief that this is long term a good thing. If the ECB does engage in QE the results will be unpredictable in the medium term, in the short term it will be bullish. It is hard to define short term.

Long War: Obama's decision to pull all US troops out of Iraq continues to rock the world of the Long War. The threat of Israel launching an air strike against Iran has the Iranian navy practicing maneuvers to close the Strait of Hormuz and the US Navy is getting ready to counter these maneuvers; this is supporting the price of oil. With its US patron leaving Iraq unprotected, the Iraqi government is reaching out to Iran, forging the beginning of an unholy new alliance. To impress Iran, Iraq is doing what it can to help Syria, Iran's puppet. The power vacuum left by Obama's troop withdrawal is causing Turkey to step up and fill the role played by America. Turkey is hinting that it will invade Syria and/or step up its support of the Free Syrian Army. Turkey is also slapping Iraq verbally but we don't know what exactly Turkey is saying to the Iraqi government. The Iraqi Prime Minister is saying that Turkey represents the greatest threat his country faces, so whatever Turkey is saying must be pretty good. The Turkish military is the second strongest in NATO after the US. Turkey is a regional superpower and Iran's worst nightmare.

Meanwhile, Al-Qaeda is launching a new strategy: terror strikes that fan the Sunni-Shiite conflict that is always present in the Muslim world. Sunni suicide bombers are for the first time hitting Shiite targets in Afghanistan. In Iraq there have always been Sunni terror strikes against Shiites but the pace has stepped up dramatically in recent weeks. The nascent civil war in Syria is a Sunni/Shiite sectarian conflict. The good guys in Syria are Sunni. Al-Qaeda is Sunni. Al-Qaeda very much needs to gain a foothold in the Syrian war and take control of the good guys and then convert them to bad guy Sunni fanatics. Only Turkey and the CIA can prevent this.

Amazingly, Mullah Omar's Taliban is against Al-Qaeda sectarian attacks in Afghanistan. It is hard to understand exactly what this means.