Russ Feingold, Rally Killer

Charts: September is the worst month for stocks, on average. In August the bosses at the big investment firms take the month off and lounge on the beach. In September they go back to work and have a cow when they see the crazy stocks that their junior associates bought. The bosses then hit the sell button with a vengeance. While October is only the second worst month for stocks, the really big crashes in stock market history usually occur during this month.

Fundamentals: Revised Q2 GDP came in at negative 1%. The headline number is wrong, the US economy actually grew .4% because the government counts declining inventories as a negative and increasing inventories as a positive. So if demand has evaporated and inventories are building in warehouses that boosts GDP and if demand picks up and the warehouses are emptying out that’s a negative. The government’s method is fine in a steady economy but in today’s environment it is misleading. So the recession is over, the economy is expanding, very weakly. That’s the good news and the bad news. The end of the recession is already priced into the market. Investors will now look at the strength of the recovery, which doesn’t look so hot.

Geopolitics: In Iraq, the bad guys are sending suicide bombers into remote villages to force the Iraqi government to spread itself thin. The insurgency has definitely flared up and will continue to flare as the January election gets closer. Recently Al-Qaeda in Iraq has been hitting Shiite targets in an effort to restart the sectarian civil war but the Shiites heroically refuse to bite, so we have this new tactic. Even though our media is painting a dire picture, the Iraqi government is dealing with the insurgency fairly effectively and doing so without inordinate help from US troops.
In Chechnya, last week there were three suicide bombings. The situation is getting very hot in Russia’s North Caucus region. The Russians put a heavy-handed dictator in charge of Chechnya some years ago and through extremely brutal methods he brought the insurgency to a halt with the help of Russian counter-insurgency forces. Russia withdrew its forces a few months ago and all hell has broken out since. The prevailing wisdom in the West is that Moscow must tell the heavy-handed dictator to be nice. The real answer is for Russia to move its special forces back in place. Until and if that happens it will only get worse. Bear in mind that all these hot spots are simply different theatres in one global war. Russia’s problems are America’s problems and bad for the stock market.
In Saudi Arabia, the bad guys tried and failed to assassinate the Deputy Interior Minister, Prince Mohammed bin Nayef, with a suicide bomber, who killed himself and only injured the Prince. Nayef is in charge of destroying Al-Qaeda in the Saudi Peninsula and he has ripped the bad guys apart over the past couple years, the biggest success story in the Long War so far. It is not a good sign that the bad guys got this close to the top good guy in Saudi Arabia.
In Pakistan, bad guys attacked a NATO fuel convoy along the Afghan border, destroying 20 oil tankers. This is the second successful attempt to go after NATO supply lines in the past week, a sign that the Pakistani Taliban is effectively helping the Afghani Taliban and that the new super-chieftain, H. Mehsud, is very capable. In a separate attack, bad guys raided a policy academy in the Swat Valley and killed 16 cadets.
In Washington D.C., Wisconsin Senator Russ Feingold wrote an op-ed piece in the Journal calling for the US to pull all troops out of Afghanistan. Dozens of peace groups are slowly ratcheting up the volume for a troop withdrawal, small peace rallies are occurring here and there with greater frequency. Cindy Sheehan is camping out in Martha’s Vineyard where the President is vacationing, making the same noise that she made against Bush and getting press coverage. So far heavyweight liberal organizations like Moveon.org have not yet called for troop withdrawal because they don’t want to damage Obama and his healthcare proposal. If Obama-Care totally dies the heavyweights will probably jump on the peace bandwagon. The peace movement stirring to life is the reason why Secretary Gates told General McChrystal to hold off on his troop request. Obama and Gates certainly want to give McChrystal his extra troops but they aren’t sure how to handle the resurgent peace movement, which will get stronger if the troop request is granted. Obama and Gates may try to rapidly move 40,000 troops out of Iraq and into Afghanistan and then pitch the move as neutral, simply moving troops from one combat zone to another. I think Iraq can handle the removal of that many US troops.