Fiscal Cliff No Joke

Charts: The market is in a rally attempt. It is not in a rally. It needs to consolidate its gains for about 4 days and then have a follow through day (up in bigger volume than the early stages of the attempt) to have an actual technical rally, which will end the correction. The S&P 500 has inched up above its 200-day moving average. It needs to hold above this level for a technical rally to take hold.

Fundamentals: Some in our core group are poo-pooing the damage that may occur if the US economy drives off the fiscal cliff, which is to say that Congress does nothing and allows scheduled spending cuts and tax increases to occur. Here is the best way to think about the fiscal cliff: forget the spending cuts, they are mostly smoke and mirrors, the only cuts that are real will hit the Pentagon. Instead let's simplify the whole issue by focusing on the tax increases. If we drive off the cliff, then $400 billion in new taxes will hit in 2013. Maybe nothing bad will happen. Also, maybe pigs can fly. No laws of aerodynamics are violated with the notion of pigs flying: it is within the realm of possibility. The same is true of this gargantuan tax increase. Maybe. Maybe. Maybe. Okay, let's get past anything is possible. In 1938 a similar tax increases hit the US economy as it was recovering from the Great Depression. This sent the US economy back into a tail spin. In Europe similar tax increases under the auspices of Austerity have plunged that continent back into recession. Every historical example that we can name tells us that a big tax increases right now will smash the US economy back into a savage recession.

Long War: The fiscal cliff generates real cuts to the Pentagon, $50 billion in 2013. The Pentagon has no discretion over where to cut. Instead the cuts are designed to slash the most vital programs and weapon systems, not (for example) health care for retired veterans (which wouldn't hurt military capability). The cuts are designed to cripple national defense. The cuts are like a man kicking himself as hard as he can in the balls. They were designed this way to make the Republicans bow to the will of the Democrats. This shows how stupid and weak the Republicans are but more to the point if these cuts go through America will suffer huge losses in the Long War and China will roar like the Great Dragon it is. Just like firing CIA Director Petraeus, these potential cuts show how the awesomely powerful USA can only be hurt by one great power on Earth: the awesomely powerful USA, our own worst enemy. 

Fiscal Cliff

Charts: The market has been in a correction since late Sept. It is now in a rally attempt. The correction reached about a 10% loss on most of the major indexes. That doesn't sound too bad, except these indexes all plunged below their 200 day moving averages; so the correction has been worse than you might think from a chartist view point.

Fundamentals: Right before the election the market thought Obama and the Republicans would extend most of the Bush tax cuts and then try to leisurely hammer out a deal without the January fiscal cliff deadline breathing down their backs. The market knew that there was no way a deal could be reached by January. An extension would give both sides room to maneuver. The market wanted that extension. But Obama got super cocky and tried to hammer out a deal favorable to his ultra-left wing agenda without an extension. Obama thought he could put a gun to the Republicans' head and get everything he ever dreamed of right now, all at once. But the market is more powerful than Obama and it seems that the market will get its way, we hope, which is to say an extension on the tax cuts. If not, then the correction will turn into a bear market and the economy will drive off the fiscal cliff.

Spain is saying it will create a host of free trade deals with Latin American countries. The recovery is dependent on all major economies opening up and creating free trade accords. Austerity, fiscal discipline, government spending policies, none of these make any difference in the medium and long run. All that maters is free trade. That is the only thing that will keep the recovery going at this point.

Long War: CIA Director Petraeus was canned for having an affair, the greatest military mind of our generation. In WW II George Patton was canned for slapping a sick soldier. Patton was the greatest military mind of that generation. America is the only great power in history to eliminate its best military leaders during crucial wars for nonsensical reasons.

But its not as simple as all that. In my last blog I said that the killing of US personnel on Sept. 11 in Libya proved that the CIA was way more involved in the Libyan Civl War than was commonly assumed, way more involved than Congress or the White House had authorized. And Langley is more involved in the Syrian Civil War than they are supposed to be. Because of the hot juicy sex scandal nobody is digging into Langley going rogue. So Petraeus quitting or getting fired has a very good side effect. It is almost too big of a conicidence to swallow. Why did he really quit? Analyzing the CIA is like reading tea leaves, dificult to the point of impossible. Langley is home to the greatest liars and con men on Earth. We need them to keep lying and those lies need to be believed. More important, the CIA must never have civilian oversight. If the current Deputy Director is made Director, then we are out of the woods.        

Long War: There was a lot of media hand wringing when AQIM (Al-Qaeda North Africa) attacked the US Consulate in Libya and killed what we thought at the time were State Department employees. We now know most of the Americans killed were CIA, in fact most were ex-Navy SEALs. The State Department mission in Libya was and is a front for the CIA. From all this we can deduce that Dave is correct in his conjecture that the CIA was essetially running the Libyan War and remains much more active there than the media would have us believe.

And this is true in the Syria Civil War as well. The CIA and the rebels are winning in Syria. It is a scary thought, but Al-Qaeda is winning in Syria also. The CIA is not only using Al-Qaeda in Syria but in Iraq as well. Iraq is aligned with Iran and Syria. The CIA told us openly it has pulled all operatives out of Iraq. After it did that Al-Qaeda in Iraq launched a huge terror campaign. But the terrorism was and is aimed against a non-ally (sort of an enemy, okay a frenemy) of America. Iraq deserves to get chewed up by Al-Qaeda and after getting mauled for a while they seemingly stopped Iranian overflights of their country. The overflights were carrying weapons.

I read a lot into the CIA having a much bigger presence in Libya than they admit. It is also significant that there is no media follow up to this revelation. Nobody cares what the CIA does. This is good news. Under the cover of darkness Langley will win the Long War. If everybody continues to look the other way, there is nothing they can't do.