Opening Moves In Battle Of Kandahar

Charts: The S&P 500 was up 2% last week. Chinese stocks were down 5%. Hong Kong was down almost 3%. Japan was down 1.7%. Asia is the only source of genuinely powerful growth in the world. The S&P 500 looks okay but global stock markets are not looking super healthy. Fear of Greece defaulting is causing American stocks to acquire a safe haven aspect. This speaks to strong geopolitics and weak global fundamentals (scary).

Fundamentals: With sovereign debt loads running about 3 times the historical average in OECD countries we have to question the sustainability of government borrowing at these levels. Going forward, these astronomic debt levels are only sustainable if GDP growth at least equals the yield on a given government’s 10-year bond. The yield on Greece’s 10-year bond is about 9% and the consensus forecast for GDP growth is slightly negative for the rest of this year and 2011. So there is a real problem with Greece and proposed bailout schemes might not get the job done. America has a 10-year bond yield of about 3.8% and GDP growth is forecast at 3%. This tells us that the situation in America (and therefore the world) is touch and go. Whatever you think about the financial reform bill preventing some future credit crisis, in the here and now it will strangle growth. The cap and trade bill that taxes carbon emissions would be even worse. At some point Washington is going to have to ink free trade accords and institute other genuine free market pro-growth policies or we’re going to have to start thinking about cashing out our stock portfolios, harvesting gains, and riding out another bear.

Geopolitics: Six CIA drones have been circling a village in N. Waziristan, Pakistan, since Saturday. On Sunday the wolf-pack launched Hellfire missiles into two Taliban houses, killing at least 8 bad guys. The drones stayed in place and fired missiles at rescue parties entering the two buildings. The drones are still over this town and have it in lockdown mode.
It’s a good thing the German Army has transformed itself from a pacifistic Bundeswehr to a warlike Wehrmacht because the Afghan province it controls, Kunduz Province, has become a new hot zone in the war. A key NATO supply line runs through Kunduz and the bad guys are stepping up efforts to attack NATO supply lines, to hamper the coming offensive in Kandahar. Over the weekend the Afghan Army (backed by US ground forces and air power) killed 20 Taliban fighters in Kunduz. There has been constant fighting for the past week in different parts of northern Afghanistan between the Taliban and the Afghan Army and casualties are stacking up without being officially reported through media channels.
Further south, another NATO supply line was attacked in tribal Pakistan along the Afpak border. Four fuel tankers were set ablaze by the bad guys and several good guys were killed. All this fury over NATO supply lines amounts to opening moves in the Battle of Kandahar.