At Last We Have A Bad Guy Body Count

Charts: The S&P 500 closed at 1053, up .3%. Leadership is with materials and industrials, which is good. This is what bullish chartists are saying: In 2008 the index was down 38%, a severe but not historically bad bear market. So far in 2009 the index is up only 16%, a normal bounce back from a harsh bear. Forget the 55% gain from the March low and also forget the huge drop from January to March. Smooth out the charts and the rally doesn’t look all that scary. Relax. Quit freaking out. I’m not that bullish, but that’s what they are saying.

Fundamentals: Retail sales came in much better than expected. The Empire Manufacturing Index came in better than expected. Wholesale inflation came in worse (higher) than expected. With the loosest monetary policy in history, plus one of the highest ever levels of deficit spending, inflation could eventually kill the recovery by jacking up interest rates. But for now inflation is helping the bull market. The uptrend is driven more by excess liquidity than fundamentals. Central banks around the world are shoveling money into private banks. Because the recovery is weak, the private banks aren’t lending the extra funds; instead all that dough is being parked in reserve accounts, driving down interest rates on cash. In real terms (accounting for inflation) cash is paying negative interest. This drives money into the stock market and commodities, making for an explosive but fragile bull market.

Geopolitics: Four American helicopter gunships took off from a warship in the Indian Ocean and opened fire on an Al-Shabab motor convoy deep in the heart of Somalia, killing several bad guys. The choppers landed and US Special Forces soldiers pulled living and dead bad guys out of the wreckage. Among the dead was top Al-Qaeda officer Saleh Ali Saleh Nabhan, who was running training camps in Somalia for American-born Somali fighters. Nabhan is very famous and has been responsible for some of Africa’s showiest terror attacks. This incident is further proof that the CIA is heavily involved in the Somali war (bullish). There are also rumors of French involvement in the operation.
The Paki Army’s new offensive is going well. Recent fighting resulted in 19 dead bad guys and 3 dead good guys. Continuing a recent trend, dozens of bad guys surrendered rather than fight to the death, potentially offering a treasure trove of intelligence to the ISI, which is not hobbled by human rights concerns. CIA drones killed 4 bad guys Monday, 2 of them were Al-Qaeda. Reaper Drones have killed 12 bad guys in 3 separate strikes in the past week, harvesting a high percentage of dead Al-Qaeda operatives, which are higher quality targets than Taliban because Al-Qaeda finances bad guy combat operations. The drone strikes have been near the border region, which means they are helping the situation in Afghanistan.
We now know that fighting in Afghanistan is going better than supposed because the Afghan government is at last giving a bad guy body count, fed up with the Pentagon’s ill-conceived tight-lipped policy. The Afghan government says 27 bad guys were killed today, one day after 50 were killed.
Chairman of the Joint Chiefs, Mike Mullen, told the Senate Armed Services Committee that the troop request was coming very soon and they better grant it. Ultra-peacenik Senator Carl Levin opined that more US trainers should be sent to Afghanistan not more troops, this way the Afghan Army can take over right away and destroy the bad guys all by itself and American troops can immediately come home. In diplomatic language, the Admiral told the Senator that he’s out of his mind. I think the debate over the troop request is going okay.

Specific stocks: With inflation rearing its head, material stocks should do well. About half the stocks mentioned here have been in that space. Among those old favorites, Cleveland Natural Resources (CLF) could be a takeover target from China. The market knows this of course and CLF is up 17% in five days. A lower risk material stock is DuPont (DD). BUCY and JOYG make mining gear and are also in this space.