Huge Taliban Victory

Charts: The S&P 500 closed at 1115, down 1%. The key 1120 support level was violated (bearish). Yield on the 10-year popped above 3.8% (not good).

Fundamentals: First time jobless claims came in much better than expected. Today the good news was bad because it caused interest rates to spike on fears of Fed tightening. Rates might go up even if the Fed doesn’t tighten. The mammoth treasury auctions this week ended okay, but foreign buyers stayed on the sidelines. If China and Japan don’t aggressively buy US debt, rates will skyrocket and crush the global recovery. Team Obama picked a bad time to escalate its trade war with China. US stocks levered to China were hit hard again today as investors try to guess how the Asian giant will retaliate. Team Obama’s first salvo in the trade war was against Chinese tires. China responded with a mild move against US automobiles that was purely symbolic. It is logical to assume that China will have to get tougher this time to teach Team Obama a lesson.

Geopolitics: The Taliban scored a huge victory in Afghanistan by killing 4-8 top CIA officers stationed in a forward base. The CIA said the loss was immense. President Karzai is unrelenting in his criticism over Special Forces strikes that he claims kill women and children. Karzai is triggering anti-American demonstrations across the country. He needs to be muzzled by the White House, not the Pentagon. President Obama is only good at foreign policy when he focuses. After Pearl Harbor, FDR said “Dr. New Deal” was giving way to “Dr. Win-the-War.” Only a short while ago Obama decided America’s strategy for fighting the Long War will be based on the McChrystal counterinsurgency plan, analogous to Harry Truman’s decision in 1948 to begin America’s multi-decade long containment strategy in the Cold War. Unlike Truman, Obama has focused on healthcare and nothing else since making his momentous choice. On that score, Sen. Nelson of Nebraska is seeing his approval ratings in state-wide polls plummet after casting the deciding vote to end debate on healthcare. Fighting for his life, Nelson is launching a massive ad campaign in Nebraska to salvage his career. Healthcare reform probably resides on the outcome of Nelson’s campaign. Whenever there is one-way choice between guns and butter, the stock market always wants guns. Obama wants guns and butter. It might not be possible.