The Guy with the Bad Hair

Charts: Today the S&P 500 launched its fifth rally attempt in the current correction, obviously the other four failed. The broad index closed above 1285 and the Dow above 12000, technical levels indicating we have at least started a rally attempt. In the days ahead we need to see a follow through day, an up day in bigger volume, for a true technical rally to begin.

Fundamentals: China is the source of growth for the world economy. Today Chinese inflation came in hotter than expected but the Great Dragon is still growing at a stout pace. There had been fears of Chinese stagflation and the squelching of these fears is the reason for today's rally attempt. Still, oil has to come down or there will be stagflation in China. In that case Beijing will keep tightening until inflation comes down, even if it means recession. Inflation in China causes huge riots and threatens the existence of the government; therefore, government officials will do anything to crush inflation.

Joe Biden's Congressional deficit reduction panel claims it is near a breakthrough and will recommend huge spending cuts without tax increases. It seems too good to be true. If these claims are accurate, then Biden's recommendations will be on the table right as the August 2 deadline for US government default hits. This means that liberals will have almost no choice but to go along with the cuts.

Long War: The CIA ran an experiment to see how deeply the ISID is woven into the fabric of the ISI. (ISID = Pak intelligence officers loyal to Al-Qaeda). Langley gave the ISI the location of two Al-Qaeda bomb factories and asked them to make a raid. By the time the raid was launched, the bad guys had been tipped off. So the ISID is a huge parallel organization tightly woven into the ISI and will take years to unwind. The CIA will have to infiltrate the ISID and chop it up from the inside. Real progress in the Pak tribal lands will have to wait until all this happens. It is called the Long War for a reason.

Obama is hinting that he will request a troop draw down of 30,000 in Afghanistan but give the Pentagon 18 months to start shipping soldiers home. That is a big lead time so the whole scheme will probably work if the CIA is beefed up in the meantime and has enough firepower to take over from the USMC and US Army.

In Yemen, the King of Saudi Arabia brokered a truce between the sitting government and the disjointed rebel movement. That truce is mostly holding and the fighting going on is between the Yemeni Army and Al-Qaeda. This is the first time that AQAP has been in a fight for its life in Yemen. So even though a new war has started it is a good thing because before the bad guys were not getting shot at.

In Libya, NATO attack helicopters are finally integrated into the war effort and the rebels are pushing on all fronts. In Brega, the push stalled once but is back on track. In Misrata, fighting is fierce once again, both sides are taking big casualties and it is hard to say who is winning. In the western mountains, the rebels are pushing hard and NATO officials claim the good guys are taking ground away from the bad guys. The western mountain rebels are drawing fire from Gaddafi's army into Tunisia. The goal apparently is to get the Tunisian Army to attack Gaddafi. This would be very positive if it happened. In fact the Tunisian Air Force scrambled one fighter jet and one attack helicopter in response to a Gaddafi artillery barrage that placed shells on Tunisian soil. So keep your fingers crossed, maybe Tunisia will clobber the guy with the bad hair (the rebel nickname for Gaddafi).