Pak Army On The March

Charts: The S&P 500 closed at 1041, up .5%. The market is in a correction.

Fundamentals: America’s October national ISM manufacturing index came in today much stronger than expected. The employment and export components were good but new orders softened. Manufacturing data out of China, the Euro-zone (mostly Germany), and S. Korea also came in strong. Combine this data with weak GDP out of Britain and a picture emerges of China leading the fragile global recovery almost single-handedly. Germany is levered to China. S. Korea is highly levered to China. American manufacturing is levered to China. Britain is not levered to China. So we are back to the dilemma of whether or not bad economic policy by America’s government is being offset enough by China to keep the global recovery chugging along.

Geopolitics: The indomitable Pak Army reported Sunday that the war in S. Waziristan is going better than expected after a few early setbacks. The Army has captured 8 Taliban cities and says 3 more will fall this week. In each of these captured cities the surrounding countryside and mountaintops have been 100% secured. The super strategic city of Makeen (capital city of Taliban) is being surrounded once again, but this time the encirclement is much sturdier than the first attempt because of all those mountaintops and forests that are under Army control. The Army says that elite Uzbek and Arab fighters are abandoning their Pak Taliban brothers, perhaps to regroup and wage guerilla war in S. Waziristan at a later date or these foreign bad guys may move on to other hotspots like Somalia. It is important to remember that S. Waziristan is not really a guerilla war at this point. It is more like a conventional war between two countries. And the Pak Army is supremely equipped to win a conventional war. After the conventional phase, a guerilla war will emerge and the formation and efficacy of good guy tribal militias will be important. The Taliban’s terror campaign in the non-tribal regions grinds on but at a slower pace. Terror attacks are increasing in many of the other tribal regions besides S. Waziristan. If the Taliban really is shifting away from attacking non-tribal parts of Pakistan in favor of the tribal regions, then this is a sign that the Taliban is fighting for its life.
The Afghan runoff election is canceled and the moderately corrupt Karzai is now president once again of Afghanistan. This is good news. Liberal pundits and leftwing pinheads will moan that there is no longer any chance that Afghanistan will have a corruption-free, stable and honestly elected government like Switzerland (gasp!). But there was never a chance of that happening. Here is one lesson from the Vietnam War that applies to Afghanistan: the US pulled support from a moderately corrupt S. Vietnamese government in the early stages of that war, causing the government to fall. It was a huge mistake. Big surprise, the next S. Vietnamese government was much worse. In 1979 America pulled its support from the moderately corrupt Shah of Iran and that turned out to be a mega-disaster. Yes, it would be wonderful if S. Vietnam, Iran, or Afghanistan could have been magically transformed into Switzerland. US foreign policy should not be based on magic.