Bad Guys and Good Guys Forced To Fight

Charts: The S&P 500 closed at 1137, up .3%. Notching a small gain after the big one yesterday is bullish. Yield on the 10-year note went down and bond prices strengthened (good).

Fundamentals: Pending home sales plunged 16% in November, highlighting the fact that the US housing market is totally dependent on massive government subsidies that will need to be extended. Factory orders were up and car sales look good.

Geopolitics: The Long War Journal reports that recent CIA drone strikes in N. Waziristan have targeted the Taliban leaders who signed peace treaties with the Pak Army, apparently killing some of them. The CIA is dictating policy to both the Pak Army and the Taliban, forcing them to keep fighting each other. General McChrystal is meeting with top Pak Army officers to smooth ruffled feathers.
In Afghanistan, President Karzai cannot get his picks for cabinet posts through the Afghan parliament. The State Department may have a hand in stymieing Karzai. This marginalizes Karzai and with the new election indefinitely postponed it will make him a symbolic leader, a positive development. America needs to put the Afghan Army in charge of the country because Afghanistan is not ready for democracy.
In China, the communist party is rehabilitating Chiang Kai-Shek, the leader of the nationalist movement who battled Mao for control of the country 70 years ago. The new party line is that Chiang was a good man who fought hard against the Japanese and was simply misguided when he attacked Mao and the communists. Taiwan was founded by Chiang Kai-Shek and is currently controlled by the political party that he also founded. Rehabilitating him is helpful for the peaceful integration of Taiwan and China along the lines of Hong Kong’s integration. The only possible great power conflict in the near future is between China and America over Taiwan. Everyday this conflict becomes less and less likely. Therefore, there is only one war on the planet, the Long War. China and Russia have Islamic insurgencies at home, so the great powers should eventually become united in prosecuting the LW.

Specific Stocks: Where can we find value? BUCY and CAT are the 2nd and 1st biggest mining machinery makers. CAT’s PE is 27%, 5 year EPS growth is 10.6%, and overall margins are 6.9%. BUCY’s PE is 16%, 5 year EPS growth is 12%, and overall margins are 9.3%. Based purely on these numbers BUCY offers more value.