Obama Acting Like LBJ?

Charts: The S&P 500 closed at 1028, up 0.01%. We are getting consolidation for now, the only possible bullish chart action given the fundamentals. Investor sentiment levels have reached the very high late 2007 levels; this means that any bad news could cause a serious downdraft. When investors are overly optimistic they get flighty when their hopes are dashed by bearish data.

Fundamentals: New home sales screeched up 9.6% in June, vastly exceeding forecasts. Investors are beginning to sense that the recent monster upside surprises in housing are due to the potential expiration of the $8000 tax credit in late November not a return to normal market conditions. While Congress is expected to pass a new bill that almost doubles the tax credit, this is not a sure thing, and home buyers are rushing to beat the deadline.

Geopolitics: In Afghanistan, as the US Marines fought the Taliban in the boonies of Helmand province many more Taliban fighters than anybody knew existed moved into the big southern city of Kandahar and started tearing it apart. They are continuing to tear it apart as I write. The original strategy was to destroy bad guy supply lines and take control of the poppy growing region, denying the bad guys their primary source of funding. That strategy is apparently defunct as good guys leave the boonies, move into Kandahar, and try to simply hold the line there. The Iraqi surge had 100,000 more American troops on the front line than the Afghani surge and it worked. It’s not paradise in Iraq right now, but for the sake of brevity I’ll leave the assessment there as: war over and mopping up going okay. Afghanistan and Pakistan are the heart of the beast, worse and nastier than Iraq. It’s going to take a lot more troops to win. An expanded good guy push into the heart of the beast will mean screaming headlines and probably spell the end of Obama-Care, massively angering liberals.
A recent poll found that only 6% of Israelis think Obama is pro-Israeli. George Bush scored 88% pro-Israeli. Israeli Prime Minister Netanyahu sees his popularity sky rocket whenever he stands up to Obama. This is emboldening the PM to slowly back away from his freeze on settlement building in the West Bank. Recent polls of American Jews show overall approval for the President is still sky high. But his policy on freezing settlement construction polls poorly. Obama needs to keep the heat on Netanyahu but the President is beginning to waver, probably because he has too much on his plate.
There have been two big wars in the Russian regions in and around Chechnya. The Islamic flare-up there has become so intense that a third war looks likely. I would like to combine that piece of information with another that is only seemingly unrelated… The moderate and responsible Islamic government of Malaysia decided a couple weeks ago to cane a female citizen for drinking a beer. Malaysia had never done anything like this before. In the past drinking a beer while illegal would have been more like a traffic ticket. This small move toward Islamic radicalism caused investor outrage and since Malaysia is hard wired into the global economy it backed off and the beer drinking woman will not get caned. Caning a woman in Malaysia and the potential start of another Islamic war in Russia are both aspects of something that scholars have dubbed the Long War against Radical Islamic Militias. The Long War won’t vanish just because the President wants to pass a healthcare bill. Like LBJ, Obama should chose guns over butter, he certainly can't have both.