Charts: Today’s newsletter goes out before the bell, but at midday this is the technical story: Global markets are very fragile and would certainly be tanking if not for American leadership. Stocks are strongest in proportion to exposure to the US market. US small caps (IWM) are strong and stronger still is US retail (XRT). The charts are telling us that good geopolitics is countering bad fundamentals.
Fundamentals: The EU has unearthed new smoke and mirrors accounting gimmicks that understate Greek debt, causing Greek yields to skyrocket, the danger of default grows greater day by day. Portuguese debt is beginning to come under pressure. If a domino effect occurs there is $600 billion in EU periphery debt that could go sour. Advanced country sovereign debt is the financial crisis of our day and the principle threat to the recovery.
Geopolitics: The invincible Pak Army killed 35 bad guys on Thursday and 1 good guy was killed.
Germany has added 500 extra soldiers to its Afghan force, bringing the total to 4500. These superb soldiers are now being allowed to fight. 7 German soldiers have died in combat so far this month. German Chancellor Merkel made a speech to her Parliament today. For the first time she used the words “war” and “warfare” to describe what Germany is doing in Afghanistan. To American ears this may sound trivial, but in reality it is a major sea-change for Germany. In a recent firefight with the Taliban, 14 American soldiers came to the German Army’s aid and helped turn the tide. Merkel awarded these American soldiers the Golden Cross yesterday. Again, this is a symbolic gesture that carries more freight than we Americans might suppose. Germany has stepped up to the plate just as Holland announced troop withdrawals from Afghanistan. Germany’s action stopped a mass exodus of NATO allies from the war zone. Germany’s new found bellicosity is not what the Taliban wants to see. Today a Taliban spokesman resignedly talked about what would happen if it lost the looming Battle of Kandahar. Even the bad guys know what kind of military machine Germany was at one point and could be again. It took the combined might of 64 nations to defeat Germany in WW II. Today’s Bundeswehr is starting to resemble the mighty Wehrmacht.
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