AQAP Is On The March

Charts: The S&P 500 closed at 1166, down .17%. The market was up all day but then experienced a bearish reversal into the close. FXI (Chinese blue chips) got shredded today. FXI is screeching down away from its 200-day moving average. The charts are overall worse than one would think merely from looking at the S&P 500.

Fundamentals: Progress was made overnight in bailing out Greece. This is good but it opens up a can of worms. Bond vigilantes are now attacking US government debt. Yield on the 10-year is shooting upward, now over 3.9%, nearing the 4% danger zone. In the middle of the trading day Fed Chief Bernanke tried to jawbone interest rates down. It is scary that he feels the need to do this and markets were unsettled by his performance. The dollar was up again today. High treasury yields equal a strong dollar: this hurts the carry trade, clobbers emerging market debt and while it should theoretically help emerging market exports into the US that salutary effect is potentially diminished by a weakened US consumer, not to mention US housing will be annihilated if interest rates keep rising.

Geopolitics: Russia and America have hammered out a nuclear weapons reduction treaty. By cementing US-Russia relations this treaty prevents India from embracing Russia, which allows the US to give more military aid to Pakistan. Meanwhile ground action in the Long War rages on. The Pak Army killed 21 bad guys in heaving fighting along the Afpak border. As the Pak Army digs into the border region, it uncovers better intelligence and some info leaks out to the press. A picture is emerging of AQAP (Al-Qaeda’s Yemeni franchise) being stronger and better organized than previously thought. There are rumors of Yemeni surgeons implanting explosive breast implants in female suicide bombers in secret Al-Qaeda clinics in the Pak tribal lands. While this might sound like a tabloid news item, it is not. AQAP’s underwear bomb also sounded goofy but was real. Also, Saudi security forces have recently arrested 113 AQAP bad guys inside the Kingdom. While it is good the Saudis have captured these bad guys, it is disturbing that there were so many and raises the question as to why the big AQAP surge all of a sudden. Finally, US Naval Intelligence issued a warning that AQAP is getting ready to attack shipping off the Yemeni coast. AQAP is on the march.