Happy Tigers, Angry CIA

Charts: The S&P 500 closed at 1145, up .3%. Uptrend intact. Leadership was very good today with tech, industrials and materials up sharply.

Fundamentals: The government’s big monthly jobs reports came in much worse than expected. This caused interest rates to fall, taking some sting from the very bad fundamental news. It is impossible to overstate how damaging interest rate hikes will be to the recovery. For example, state pension funds don’t use mark-to-market accounting, relying instead on smoke and mirror gimmickry to show a combined shortfall of “only” $500 billion. Honest accounting would reveal a combined state pension shortfall of a staggering $2 trillion. The federal government will eventually have to float another $1.5 trillion in debt to bail out the states; which of course is on top of the massive federal debt already in the pipeline. Servicing America’s insane debt load will require very low interest rates. A strong recovery is a bad thing from this perspective. But don’t panic, on the sunny side of the planet (Asia) we have this data: December S. Korean exports to China were up 94%. Taiwan up 91%. Malaysia up 53%. In 2010 steel production in non-Chinese tiger economies will rise faster than in the big dragon itself.

Geopolitics: CIA drones killed 3 bad guy leaders in N. Waziristan Friday. The Taliban house the 3 bad guys were in was not just hit by missile fire, it was vaporized. The Pak government is telling the US that it must stop this new and savage drone campaign because the Pak public won’t stand for it. US diplomats in Pakistan are having their vehicles searched and are being harassed in other ways, this shows how much the drone campaign is detested. Taliban terror strikes in the non-tribal regions killed 10 civilians Friday. At the beginning of the drone campaign the Taliban was killing about 80 civilians a day. The bad guys are so frazzled they aren’t doing their job very well. CIA mood forecast: As hard as it is to believe, the agency is actually more pissed off today than it was yesterday. It is expected to be even more pissed tomorrow. The earliest forecast for mood improvement is sometime next week.

Specific stocks: Steel mills that have their own iron ore mines will outperform those that do not. US Steel (X) is an example. Let’s talk missiles and missile defense. Because he’s such a big hawk and liberals hate him for it, President Obama recently has been promising to eliminate all nuclear weapons. Because he’s a typical politician who bends the truth, he’s also been saying an anti-nuke deal with Russia is at hand. Foolishly, investors were sucked in and Raytheon (RTN) sold off. While all this was going on the Navy was busily firing Raytheon built Tomahawk cruise missiles into Yemen. Lockheed Martin (LMT) makes the Hellfire II missile fired by CIA drones. But LMT is levered to the F-35 fighter, which is on the chopping block. I am overweight defense stocks with ITT (night vision goggles and roadside bomb detection), HRS (tactical radios), and RTN.