Charts: The market had fallen into a pattern of wild swings in big volume, up one day and down the next. This is called churning or stalling, high volume and high volatility movement that goes nowhere. When the market is furiously running in place it can signal a market top. Today the S&P 500 closed at 1187, down 1.7%, again taking out key support and breaking down out of the stalling pattern. It looks like a correction has started.
Fundamentals: The Congressional grilling that Goldman Sachs is undergoing has revealed that the SEC doesn’t have a case. In a panic, the SEC asked a US Attorney General to open a criminal investigation against Goldman, masking incompetence with ultra-aggressiveness. This is the sort of attack on the private sector we would expect from Hugo Chavez. Investors are terrified that the rule book is being thrown out the window and anything goes.
Yesterday the Republicans ended their filibuster with the understanding that the Demos would give way on the more toxic aspects of the pending financial reform proposal. Today the lead Republican, Sen. Shelby, said the Demos lied and aren’t compromising on anything. If Republicans don’t grow a set and return to a rock solid filibuster, a world of pain beckons.
Geopolitics: The Pentagon’s big report on the Afghan war points to one major problem: The bad guys are able to infiltrate back into areas that the Marines have cleared, such as the city of Marja. In Iraq and Pakistan this has not been as big a problem because local tribes that live in the cleared areas have been effectively armed and trained by the good guys. These Pak and Iraqi tribes have been able to keep the bad guys out. The tribal structure of Afghanistan is so weak this hasn’t yet been possible. This is why the Pentagon is saying the Afghan war will take much longer than anybody anticipates. But the good guys will still win.
India and Pakistan are restarting their peace talks. One of the major points of contention is shared waterways, which is being addressed in these talks. America has blatantly been favoring Pakistan over India, which has been the right move up till now. It’s time for India to get a little love. Pakistan is saying that the talks will address the issue of terrorism, India’s main concern. So here’s the love.
Friday, April 30, 2010
Thursday, April 29, 2010
Egyptian Spies Hang Bad Guys
Charts: The major indexes smashed up through resistance levels in big volume, undoing recent technical damage. The broad index finished at 1207, up 1.3%. Leadership has flipped around and is now very good. Next resistance is at 1220.
Fundamentals: The EU and IMF have quit pussyfooting around and are taking a hammer to the Greek debt problem. Yields on Greek, Spanish, and Portuguese debt are dropping.
Cowardly Republicans rolled over on the financial reform filibuster. The bill is now slated for debate. But there is no bill. It is 100% in flux. The GOP is promising the final bill will not hurt car dealers and the really nasty parts will be gutted.
Geopolitics: Egypt’s intelligence agency has caught 26 Hezbollah spies. Four of these bad guys are already being fitted with hangman nooses. It is a virtual certainty that Egyptian intelligence is receiving massive help from the CIA. Other allied Muslim intelligence agencies are being similarly helped, probably with training, high tech devices, and information sharing. So while there is no “central intelligence agency” (note the small caps) linking the 17 American intelligence agencies together, there is such an agency linking and coordinating Muslim intelligence agencies. Ironically, the CIA is well-named after all.
The Pentagon sent a 150-page report on the Afghan war to Congress. Brutally honest, the report shows the Pentagon’s failures and successes and can be summed up this way: the Afghan war is being won, but at a much slower pace than Pres. Obama has promised the American public. The Pentagon calls the global conflict the Long War for a reason. Defense stocks jumped today. The more levered to the LW, the more they jumped; for instance HRS was up 9%, ITT was up 3%, and RTN was up 2%. HRS makes encrypted tactical radios for infantrymen, ITT = night vision goggles, RTN = tracking systems for drones.
Specific Stocks: Growth at a discount stocks trade at a lower multiple than their peers. Dow Chemical (DOW) and DuPont (DD) both reported blowout numbers. DD reported better growth, yet it trades at a much lower multiple than DOW. MMM is the world’s leading diversified manufacturer. Its PE ratio is two percentage points lower than the industry average. The reason: MMM just acquired a big Asian competitor and investors reflexively hate acquisitions. As far as DD vs. DOW, the latter is always making sexy partnership deals in Saudi Arabia, but its blowout numbers came from its boring Basic Plastics division and other bread and butter stuff. In fact, DOW wants to sell its bread and butter stuff to finance the sexy stuff. In all this I am treating growth stocks like value. What about actual value? Goldman Sachs (GS) is trading at a gigantic discount to its peers. If it survives the SEC attack it is a screaming buy.
Fundamentals: The EU and IMF have quit pussyfooting around and are taking a hammer to the Greek debt problem. Yields on Greek, Spanish, and Portuguese debt are dropping.
Cowardly Republicans rolled over on the financial reform filibuster. The bill is now slated for debate. But there is no bill. It is 100% in flux. The GOP is promising the final bill will not hurt car dealers and the really nasty parts will be gutted.
Geopolitics: Egypt’s intelligence agency has caught 26 Hezbollah spies. Four of these bad guys are already being fitted with hangman nooses. It is a virtual certainty that Egyptian intelligence is receiving massive help from the CIA. Other allied Muslim intelligence agencies are being similarly helped, probably with training, high tech devices, and information sharing. So while there is no “central intelligence agency” (note the small caps) linking the 17 American intelligence agencies together, there is such an agency linking and coordinating Muslim intelligence agencies. Ironically, the CIA is well-named after all.
The Pentagon sent a 150-page report on the Afghan war to Congress. Brutally honest, the report shows the Pentagon’s failures and successes and can be summed up this way: the Afghan war is being won, but at a much slower pace than Pres. Obama has promised the American public. The Pentagon calls the global conflict the Long War for a reason. Defense stocks jumped today. The more levered to the LW, the more they jumped; for instance HRS was up 9%, ITT was up 3%, and RTN was up 2%. HRS makes encrypted tactical radios for infantrymen, ITT = night vision goggles, RTN = tracking systems for drones.
Specific Stocks: Growth at a discount stocks trade at a lower multiple than their peers. Dow Chemical (DOW) and DuPont (DD) both reported blowout numbers. DD reported better growth, yet it trades at a much lower multiple than DOW. MMM is the world’s leading diversified manufacturer. Its PE ratio is two percentage points lower than the industry average. The reason: MMM just acquired a big Asian competitor and investors reflexively hate acquisitions. As far as DD vs. DOW, the latter is always making sexy partnership deals in Saudi Arabia, but its blowout numbers came from its boring Basic Plastics division and other bread and butter stuff. In fact, DOW wants to sell its bread and butter stuff to finance the sexy stuff. In all this I am treating growth stocks like value. What about actual value? Goldman Sachs (GS) is trading at a gigantic discount to its peers. If it survives the SEC attack it is a screaming buy.
Wednesday, April 28, 2010
Pak Army Kills 450 Bad Guys
Charts: On Euro-debt fears, the Dow plunged under 11,000 yesterday but regained that key support level today. Also on Tuesday, in massive volume, the S&P 500 smashed through support at 1200 and 1190, for a savage 2.3% loss. Today the broad index retook 1190 in good volume to finish at 1191, up .7% on the day. Leadership is poor. The rally is intact but very fragile.
Fundamentals: This week S&P downgraded the debt on Greece, Portugal, and Spain, jacking up yields on Euro-periphery bonds, increasing the chance of default and pushing the global financial system a step closer to Armageddon. In response, the EU and IMF are saying $132 billion will soon prop up Greek debt. Finally they’re hitting Greek debt with a hammer.
Republicans are halting the financial reform bill. Their filibuster is holding because Democrat Sen. Nelson has joined the Republicans. Financials are supporting the entire market right now. And the filibuster is supporting financials. In other words, if Sen. Nelson caves in there will probably be a market correction. He caved in on healthcare, so this is a real danger.
S. Korean GDP surged 7.8% y/y, reminding us that strength in emerging Asia counters weakness in Europe. The deciding factor is therefore America, which magnifies the importance of financial reform failing.
Geopolitics: Israeli PM Netanyahu just blinked in his stare-down with Obama, agreeing to freeze settlement building in E. Jerusalem and buckling on a host of other issues that should get peace talks going again with the Palestinians.
The interim government of Kyrgyzstan has not yet established control over the country. Looting in the capital city is increasing day by day as are anti-government demonstrations. The family of the deposed Kyrgyz President is actively working against the government but there is not yet a genuine Islamic insurgency, probably because the Taliban is gearing up for the coming Battle of Kandahar. Russia’s FSB is straightening out this mess, maybe with US help.
Thailand too is sliding into chaos at the hands of pro-democracy rebels. Unfortunately Thailand has an established Al-Qaeda linked Islamic insurgency and chaos plays into its hands.
With the far-flung nature of these Long War conflicts in mind, the CIA announced restructuring efforts that will allow it to quickly “surge” officers to hotspots around the globe. Just such a surge is occurring right now in Somalia and Yemen.
Meanwhile, CIA drones killed 5 bad guys in Pakistan Tuesday. The Afghan Taliban attacked a NATO supply depot in Kandahar and says it is laying in supplies for the big battle. The Pak Army killed 5 bad guys Wednesday. In a little over a month the Pak Army has killed 450 bad guys and destroyed 50 Taliban outposts.
Fundamentals: This week S&P downgraded the debt on Greece, Portugal, and Spain, jacking up yields on Euro-periphery bonds, increasing the chance of default and pushing the global financial system a step closer to Armageddon. In response, the EU and IMF are saying $132 billion will soon prop up Greek debt. Finally they’re hitting Greek debt with a hammer.
Republicans are halting the financial reform bill. Their filibuster is holding because Democrat Sen. Nelson has joined the Republicans. Financials are supporting the entire market right now. And the filibuster is supporting financials. In other words, if Sen. Nelson caves in there will probably be a market correction. He caved in on healthcare, so this is a real danger.
S. Korean GDP surged 7.8% y/y, reminding us that strength in emerging Asia counters weakness in Europe. The deciding factor is therefore America, which magnifies the importance of financial reform failing.
Geopolitics: Israeli PM Netanyahu just blinked in his stare-down with Obama, agreeing to freeze settlement building in E. Jerusalem and buckling on a host of other issues that should get peace talks going again with the Palestinians.
The interim government of Kyrgyzstan has not yet established control over the country. Looting in the capital city is increasing day by day as are anti-government demonstrations. The family of the deposed Kyrgyz President is actively working against the government but there is not yet a genuine Islamic insurgency, probably because the Taliban is gearing up for the coming Battle of Kandahar. Russia’s FSB is straightening out this mess, maybe with US help.
Thailand too is sliding into chaos at the hands of pro-democracy rebels. Unfortunately Thailand has an established Al-Qaeda linked Islamic insurgency and chaos plays into its hands.
With the far-flung nature of these Long War conflicts in mind, the CIA announced restructuring efforts that will allow it to quickly “surge” officers to hotspots around the globe. Just such a surge is occurring right now in Somalia and Yemen.
Meanwhile, CIA drones killed 5 bad guys in Pakistan Tuesday. The Afghan Taliban attacked a NATO supply depot in Kandahar and says it is laying in supplies for the big battle. The Pak Army killed 5 bad guys Wednesday. In a little over a month the Pak Army has killed 450 bad guys and destroyed 50 Taliban outposts.
Sunday, April 25, 2010
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.
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.
Friday, April 23, 2010
Don't Piss Off The Giant
Charts: The S&P 500 closed at 1217, up .7%. Today the index punched through one resistance level, 1214. Earlier in the week it found clear support at exactly 1190. It is staging bullish reversals and finishing the day at the higher end of its trading band, bullish signs. Small caps are leading large caps, also good. However, Chinese stocks and American financials are struggling. Investor sentiment is signaling complacency.
Fundamentals: The financial reform bill doesn’t set out new parameters for financial firms; it creates new bureaucracies and empowers old ones to establish these parameters. The bill has the federal government running the financial industry the way state governments run electric utilities. Take derivatives, since the credit crisis subsided most derivatives have moved by themselves onto central clearing platforms, but others have not, the free market at work. If the bill passes, a “derivative czar” in DC will decide which ones will be traded on what platform. Like any attempt at central planning this will prove to be a disaster. But the bill hasn’t passed yet. On Friday there was some evidence of Republicans and Blue Dogs stiffening their spines. I hate to get spiritual in this newsletter, but it could be that the ghost of Ronald Reagan is stirring.
Geopolitics: Here is Friday’s Long War body count… Pakistan: 25 dead bad guys and 1 dead good guy. Iraq: 56 dead innocent civilians at the hands of Al-Qaeda. Afghanistan: 5 dead bad guys and 2 dead good guys. Somalia: Al-Shabab and CIA sponsored Ahlu Sunnah have been locked in heavy fighting for about a week, dozens dead on both sides.
The fuel for much of this Long War bloodshed is, of course, Israel. Recently Obama said that announcements of new Israeli settlement projects in the occupied territories should be banned but not the actual projects, a way to slowly ease into a total ban. Israel saw this slow easing as a sign of weakness and flatly turned it down; furthermore Israel sidelined Special Envoy Mitchell and brazenly picked the weakest US diplomat in the docket as its preferred American liaison. This pissed Obama off. He switched gears and the State Department now backs a total settlement ban. Mitchell was put on a jet and Israeli PM Netanyahu was told to deal with the Special Envoy and nobody else. As Obama stewed, his anger continued mounting and he is now threatening to create his own peace accord and force it on the Palestinians and Israelis alike. The Palestinians are delighted. The Israelis are terrified. The lesson here? Don’t piss off the most powerful man on the planet.
Specific Stocks: Stocks are classified as Growth or Value. There is another category, so-called Growth at a Discount, or growth stocks that trade at a lower multiple than their peers. The best example is DuPont (DD) vs. Dow Chemical (DOW). DD has a multiple of 21 and DOW 95. Incredibly, over the past five years, DD has actually grown faster than DOW (crazy, huh?). DD and DOW are rivals but the real rivalry is DD and Monsanto (MON). DD and MON are the leaders in genetically engineered corn. DD corn is superior, it contains less GMO components but produces higher yields and is taking market share away from MON.
Fundamentals: The financial reform bill doesn’t set out new parameters for financial firms; it creates new bureaucracies and empowers old ones to establish these parameters. The bill has the federal government running the financial industry the way state governments run electric utilities. Take derivatives, since the credit crisis subsided most derivatives have moved by themselves onto central clearing platforms, but others have not, the free market at work. If the bill passes, a “derivative czar” in DC will decide which ones will be traded on what platform. Like any attempt at central planning this will prove to be a disaster. But the bill hasn’t passed yet. On Friday there was some evidence of Republicans and Blue Dogs stiffening their spines. I hate to get spiritual in this newsletter, but it could be that the ghost of Ronald Reagan is stirring.
Geopolitics: Here is Friday’s Long War body count… Pakistan: 25 dead bad guys and 1 dead good guy. Iraq: 56 dead innocent civilians at the hands of Al-Qaeda. Afghanistan: 5 dead bad guys and 2 dead good guys. Somalia: Al-Shabab and CIA sponsored Ahlu Sunnah have been locked in heavy fighting for about a week, dozens dead on both sides.
The fuel for much of this Long War bloodshed is, of course, Israel. Recently Obama said that announcements of new Israeli settlement projects in the occupied territories should be banned but not the actual projects, a way to slowly ease into a total ban. Israel saw this slow easing as a sign of weakness and flatly turned it down; furthermore Israel sidelined Special Envoy Mitchell and brazenly picked the weakest US diplomat in the docket as its preferred American liaison. This pissed Obama off. He switched gears and the State Department now backs a total settlement ban. Mitchell was put on a jet and Israeli PM Netanyahu was told to deal with the Special Envoy and nobody else. As Obama stewed, his anger continued mounting and he is now threatening to create his own peace accord and force it on the Palestinians and Israelis alike. The Palestinians are delighted. The Israelis are terrified. The lesson here? Don’t piss off the most powerful man on the planet.
Specific Stocks: Stocks are classified as Growth or Value. There is another category, so-called Growth at a Discount, or growth stocks that trade at a lower multiple than their peers. The best example is DuPont (DD) vs. Dow Chemical (DOW). DD has a multiple of 21 and DOW 95. Incredibly, over the past five years, DD has actually grown faster than DOW (crazy, huh?). DD and DOW are rivals but the real rivalry is DD and Monsanto (MON). DD and MON are the leaders in genetically engineered corn. DD corn is superior, it contains less GMO components but produces higher yields and is taking market share away from MON.
Thursday, April 22, 2010
Germany Regains Warrior Spirit
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.
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.
Wednesday, April 21, 2010
Slap Israel So Hard It Can't See Straight
Charts: The S&P 500 closed at 1206, down .1%. The broad index found support at 1200; it looks okay but certain chart data bears watching. FXI (Chinese blue chip index) in the past few days has plunged and is sitting just above its 200-day moving average. If it breaks below the 200-day line we are facing technical signs that China is in a bear market. XLF (big cap US financial index) is down 2.6% since the Goldman attack and it needs to stabilize. The VIX index (Wall Street fear gauge) is swinging wildly from day to day and it too needs to stabilize.
Fundamentals: It looks like the Republicans are rolling over on financial reform and this toxic nightmare will get passed. The threat of Greece defaulting is back in the news. Yield on the 10-year is coming down nicely because of Greece. US small caps (IWM) benefit as safe haven stocks on Greece fears.
Geopolitics: The prospect of Hezbollah acquiring Scud missiles has Israel breaking out in a cold sweat. Israeli defense officials are debating whether they need American permission for an airstrike against Iran (Hezbollah’s sponsor). The Pentagon has run numerous computer game simulations of an Israeli airstrike. These simulations are classified but the Pentagon has tacitly endorsed some private sector simulations, a hint as to what it thinks would happen in this eventuality. The Pentagon believes that the consequences of an Israeli airstrike against Iran would be much worse than politicians or voters could possibly imagine. Israeli fighter-bombers and its tiny fleet of refueling tankers are inadequate to get the job done in a reasonable manner. It would take months of bombing sorties, flying over powerful Muslim countries like Turkey or Saudi Arabia day after day, fighting through the Turkish or Saudi Air Force to get at Iran. These simulations show Israel seizing land and building an air base in Saudi Arabia to get around this problem. Unable to reach Israel proper, Iran’s only response would be to lash out at American positions in Afghanistan and Iraq as well as the Israeli air base in Saudi Arabia. The Kingdom would find itself at war with Israel and Iran. A civil war would break out inside Iran as the Iranian Army was bogged down abroad. America would be forced to finish the fight that Israel started, probably increasing our Mideast troop presence 20 or 30 times. America could, of course, succeed in finishing such a fight, but the world as we know it would change.
America needs to slap Israel so hard it can’t see straight. Here is the roadblock to doing just that: The Bible makes over 600 references to Jerusalem. The Koran makes zero references to Jerusalem. Evangelical Christians believe Israel’s occupation of certain parts of the Holy Land is a sign that Jesus will soon return to Earth. Evangelical Christians have a huge sway over Republicans and Blue Dog Democrats. However, I believe Obama is a foreign policy genius and will figure out a way to ring Israel’s bell.
Specific Stocks: Defense stocks levered to the Long War are rocking upward. Gates is opening the floodgates to arming our allies, cutting red tape, etc.
Fundamentals: It looks like the Republicans are rolling over on financial reform and this toxic nightmare will get passed. The threat of Greece defaulting is back in the news. Yield on the 10-year is coming down nicely because of Greece. US small caps (IWM) benefit as safe haven stocks on Greece fears.
Geopolitics: The prospect of Hezbollah acquiring Scud missiles has Israel breaking out in a cold sweat. Israeli defense officials are debating whether they need American permission for an airstrike against Iran (Hezbollah’s sponsor). The Pentagon has run numerous computer game simulations of an Israeli airstrike. These simulations are classified but the Pentagon has tacitly endorsed some private sector simulations, a hint as to what it thinks would happen in this eventuality. The Pentagon believes that the consequences of an Israeli airstrike against Iran would be much worse than politicians or voters could possibly imagine. Israeli fighter-bombers and its tiny fleet of refueling tankers are inadequate to get the job done in a reasonable manner. It would take months of bombing sorties, flying over powerful Muslim countries like Turkey or Saudi Arabia day after day, fighting through the Turkish or Saudi Air Force to get at Iran. These simulations show Israel seizing land and building an air base in Saudi Arabia to get around this problem. Unable to reach Israel proper, Iran’s only response would be to lash out at American positions in Afghanistan and Iraq as well as the Israeli air base in Saudi Arabia. The Kingdom would find itself at war with Israel and Iran. A civil war would break out inside Iran as the Iranian Army was bogged down abroad. America would be forced to finish the fight that Israel started, probably increasing our Mideast troop presence 20 or 30 times. America could, of course, succeed in finishing such a fight, but the world as we know it would change.
America needs to slap Israel so hard it can’t see straight. Here is the roadblock to doing just that: The Bible makes over 600 references to Jerusalem. The Koran makes zero references to Jerusalem. Evangelical Christians believe Israel’s occupation of certain parts of the Holy Land is a sign that Jesus will soon return to Earth. Evangelical Christians have a huge sway over Republicans and Blue Dog Democrats. However, I believe Obama is a foreign policy genius and will figure out a way to ring Israel’s bell.
Specific Stocks: Defense stocks levered to the Long War are rocking upward. Gates is opening the floodgates to arming our allies, cutting red tape, etc.
Tuesday, April 20, 2010
Al-Qaeda In Iraq Clobbered
Charts: The S&P 500 closed at 1207, up .8%. Support at 1190 was tested successfully several times during the SEC vs. Goldman sell-off. Earlier we saw that 1190 was a battleground support level. This is why it held up under the latest onslaught.
Fundamentals: Word has leaked out that the SEC had voted 3-2, along party lines, to attack Goldman. Two Republicans voted against the attack. So there is not a monolithic government effort to tear apart the economy and maybe at long last the Republicans are getting their mojo back. This newfound mojo had better defeat the financial reform bill or the warm, fuzzy feeling will go away.
Geopolitics: Afghan and NATO forces killed 13 bad guys, including 4 leaders, on Monday. A Taliban suicide bomber killed 2 good guys after infiltrating a NATO base. Taliban suicide bombers are killing large numbers of innocents every day in Pak tribal lands lately.
Iraqi and US Special Forces killed the #1, #2, and #15 ranked leaders of Al Qaeda in Iraq, delivering the bad guys the single worst blow of the war. This helped global stock markets. Here we see Iraqi/CIA cooperation from simply reading the mainstream media.
Recent events in Kyrgyzstan require deductive logic to ferret out the CIA’s role. Consider: Kyrgyz’s deposed bad guy president, Mr. Bakiyev, was trying to jumpstart a guerilla war by addressing a huge group of his followers in the southern part of the country when a group of men (supposedly part of his loyal group) opened fire on the deposed president, scaring the hell out of him. As if on cue, diplomats from Russia and America quickly made contact with the terrified Bakiyev and spirited him to nearby Kazakhstan. Since then an emboldened Bakiyev has escaped his exiled country for parts unknown and bad guys have killed 5 people near the Kyrgyz capital, possibly the start of an Islamic insurgency. Deductive logic tells us that, with CIA cooperation, Russia’s FSB planted gunmen in Bakiyev’s group and they opened fire. Bakiyev has apparently figured this out and is back in the fight. CIA/FSB cooperation is good. A new insurgency is bad.
Specific Stocks: Syria is apparently giving Scud missiles to Hezbollah in Lebanon, giving the Shiite radicals the ability to hit any part of Israel. This is good for Raytheon (RTN) and its Patriot anti-missile system. It is bad for the Israeli stock market (ISL).
Fundamentals: Word has leaked out that the SEC had voted 3-2, along party lines, to attack Goldman. Two Republicans voted against the attack. So there is not a monolithic government effort to tear apart the economy and maybe at long last the Republicans are getting their mojo back. This newfound mojo had better defeat the financial reform bill or the warm, fuzzy feeling will go away.
Geopolitics: Afghan and NATO forces killed 13 bad guys, including 4 leaders, on Monday. A Taliban suicide bomber killed 2 good guys after infiltrating a NATO base. Taliban suicide bombers are killing large numbers of innocents every day in Pak tribal lands lately.
Iraqi and US Special Forces killed the #1, #2, and #15 ranked leaders of Al Qaeda in Iraq, delivering the bad guys the single worst blow of the war. This helped global stock markets. Here we see Iraqi/CIA cooperation from simply reading the mainstream media.
Recent events in Kyrgyzstan require deductive logic to ferret out the CIA’s role. Consider: Kyrgyz’s deposed bad guy president, Mr. Bakiyev, was trying to jumpstart a guerilla war by addressing a huge group of his followers in the southern part of the country when a group of men (supposedly part of his loyal group) opened fire on the deposed president, scaring the hell out of him. As if on cue, diplomats from Russia and America quickly made contact with the terrified Bakiyev and spirited him to nearby Kazakhstan. Since then an emboldened Bakiyev has escaped his exiled country for parts unknown and bad guys have killed 5 people near the Kyrgyz capital, possibly the start of an Islamic insurgency. Deductive logic tells us that, with CIA cooperation, Russia’s FSB planted gunmen in Bakiyev’s group and they opened fire. Bakiyev has apparently figured this out and is back in the fight. CIA/FSB cooperation is good. A new insurgency is bad.
Specific Stocks: Syria is apparently giving Scud missiles to Hezbollah in Lebanon, giving the Shiite radicals the ability to hit any part of Israel. This is good for Raytheon (RTN) and its Patriot anti-missile system. It is bad for the Israeli stock market (ISL).
Sunday, April 18, 2010
Don't Recruit Refugees, Kill Them!
Charts: Assuming the rally isn’t clobbered by the SEC’s witch hunt there is a massive resistance region about 4% above the current level of the S&P 500. Around 1220-1250 we have a resistance triple whammy: At the top of the band is where the broad index was right before Lehman Brothers collapsed, the bottom of the band is where Goldman Sachs thinks fair market value resides, and in the middle we have our next big Fibonacci number.
Fundamentals: The SEC is probably going to hammer other firms that traded in Collateral Debt Obligations (CDOs) besides Goldman. It’s easy to paint a picture of this triggering a correction or worse. It will make the crippling financial reform bill more likely to pass. It will open a floodgate of secondary lawsuits against the firms being attacked. And it is already lowering the value of the toxic assets (CDOs and other acronyms) on bank balance sheets, which will trigger more write-downs, which will curb lending, and start a vicious downward spiral. Just for fun let’s assume growth in China and other positives keep the rally going. The data mining of a broad-based SEC witch hunt will be enormously profitable for data storage firms like Iron Mountain (IRM) and Xyratex (XRTX). Warren Buffet loves IRM.
Geopolitics: In the Pak tribal lands, the Taliban is sending suicide bombers into the refugee camps the Pak Army has set up near its ongoing offensive, killing dozens of innocents. The Taliban doesn’t want non-combatant villagers to leave the battle zone for the safety of these camps but rather to stay and act as human shields. In the twisted calculus of the Long War this is a good sign. Previously the Taliban treated the refugee camps as recruiting stations, infiltrating them with a few senior bad guys who would talk young men into joining up. The Taliban is now so hated by the average tribesman there is no chance of recruiting refugees, only killing them.
Several weeks ago Afghan President Karzai threatened to join the Taliban unless he was allowed to pick all the members of an electoral watchdog group, which would let him rig the next election. The UN and Karzai have arrived at a compromise. Karzai can pick just enough watchdogs to semi-rig the election, enough to guarantee his victory but not walk away with it. This is also the kind of election that is occurring in Sudan and both are positive developments.
In Heavy fighting, 29 bad guys (including 2 commanders) have been killed in Northern Afghanistan over the past 4 days as NATO launches an offensive designed to secure its supply lines. NATO is also eliminating certain luxury items from its supply chain like pizzas and burgers. This emphasis on supply lines is a sign that the good guys are getting ready for the big Kandahar offensive.
Fundamentals: The SEC is probably going to hammer other firms that traded in Collateral Debt Obligations (CDOs) besides Goldman. It’s easy to paint a picture of this triggering a correction or worse. It will make the crippling financial reform bill more likely to pass. It will open a floodgate of secondary lawsuits against the firms being attacked. And it is already lowering the value of the toxic assets (CDOs and other acronyms) on bank balance sheets, which will trigger more write-downs, which will curb lending, and start a vicious downward spiral. Just for fun let’s assume growth in China and other positives keep the rally going. The data mining of a broad-based SEC witch hunt will be enormously profitable for data storage firms like Iron Mountain (IRM) and Xyratex (XRTX). Warren Buffet loves IRM.
Geopolitics: In the Pak tribal lands, the Taliban is sending suicide bombers into the refugee camps the Pak Army has set up near its ongoing offensive, killing dozens of innocents. The Taliban doesn’t want non-combatant villagers to leave the battle zone for the safety of these camps but rather to stay and act as human shields. In the twisted calculus of the Long War this is a good sign. Previously the Taliban treated the refugee camps as recruiting stations, infiltrating them with a few senior bad guys who would talk young men into joining up. The Taliban is now so hated by the average tribesman there is no chance of recruiting refugees, only killing them.
Several weeks ago Afghan President Karzai threatened to join the Taliban unless he was allowed to pick all the members of an electoral watchdog group, which would let him rig the next election. The UN and Karzai have arrived at a compromise. Karzai can pick just enough watchdogs to semi-rig the election, enough to guarantee his victory but not walk away with it. This is also the kind of election that is occurring in Sudan and both are positive developments.
In Heavy fighting, 29 bad guys (including 2 commanders) have been killed in Northern Afghanistan over the past 4 days as NATO launches an offensive designed to secure its supply lines. NATO is also eliminating certain luxury items from its supply chain like pizzas and burgers. This emphasis on supply lines is a sign that the good guys are getting ready for the big Kandahar offensive.
Friday, April 16, 2010
Ronald Reagan Spinning In His Grave
Charts: The S&P 500 closed at 1192, down a whopping 1.6%. Support at 1200 was shattered in huge volume but 1190 held. Since only one support level was taken out the technical rally is still intact, but shaky.
Fundamentals: The SEC charged Goldman Sachs with fraud, just as the hideous financial reform bill was floundering; now it is certain to pass. Maybe a coincidence, but the timing smacks of an anti-bank witch hunt and is scaring the hell out of investors. Just as bad, President Obama signed another unemployment benefit extension into law, a step towards making this “temporary” benefit a permanent entitlement. The bill also torpedoes an automatic cut to Medicare and heaps on tons of miscellaneous pork. The refusal to cut Medicare today is strong evidence that the future cuts spelled out in the Obama-Care bill will never happen.
Geopolitics: In Pakistan’s Swat Valley, dancing parlors have reopened. For generations young women born into a sort of Muslim dancer caste have danced with men for money under heavy chaperonage and under strict rules that allow very little touching. The female dancers are also covered head to toe, of course. When the Taliban ruled the Swat Valley female dancers were brutally executed and tossed into the street. Dancing, music, and singing were all a death sentence. These activities have returned to the Swat Valley, proof that there are no Taliban left.
The Presidents of Russia and America, working closely together, have removed the deposed president of Kyrgyzstan to a neighboring country, averting a civil war. Since the ex-leader of Kyrgyzstan was a watered down Islamic bad guy, he would have certainly become a full fledged bad guy and drawn on Al-Qaeda support if a civil war had erupted. The war would have occurred 80 miles from Afghanistan. The consequences would have been earthshakingly bad. The two presidents were able to unite as a team because of the newly crafted START treaty. Republicans are determined to scuttle this treaty in the Senate. They are also doing everything possible to undermine Obama’s move to isolate Israel, principally by shifting focus to Iran and away from settlement building in E. Jerusalem. The Republicans are opposing the President’s “smart sanctions” (targeting Iran’s leaders) in favor of their own “stupid sanctions” (targeting average Iranians, leaving the leaders unscathed and fostering anti-American sentiment). As in the late 30s, the Republicans are promoting a toxic foreign policy that the President must overcome. What’s really sad is the Republicans aren’t doing anything to stop runaway government spending. So what good are they?
Fundamentals: The SEC charged Goldman Sachs with fraud, just as the hideous financial reform bill was floundering; now it is certain to pass. Maybe a coincidence, but the timing smacks of an anti-bank witch hunt and is scaring the hell out of investors. Just as bad, President Obama signed another unemployment benefit extension into law, a step towards making this “temporary” benefit a permanent entitlement. The bill also torpedoes an automatic cut to Medicare and heaps on tons of miscellaneous pork. The refusal to cut Medicare today is strong evidence that the future cuts spelled out in the Obama-Care bill will never happen.
Geopolitics: In Pakistan’s Swat Valley, dancing parlors have reopened. For generations young women born into a sort of Muslim dancer caste have danced with men for money under heavy chaperonage and under strict rules that allow very little touching. The female dancers are also covered head to toe, of course. When the Taliban ruled the Swat Valley female dancers were brutally executed and tossed into the street. Dancing, music, and singing were all a death sentence. These activities have returned to the Swat Valley, proof that there are no Taliban left.
The Presidents of Russia and America, working closely together, have removed the deposed president of Kyrgyzstan to a neighboring country, averting a civil war. Since the ex-leader of Kyrgyzstan was a watered down Islamic bad guy, he would have certainly become a full fledged bad guy and drawn on Al-Qaeda support if a civil war had erupted. The war would have occurred 80 miles from Afghanistan. The consequences would have been earthshakingly bad. The two presidents were able to unite as a team because of the newly crafted START treaty. Republicans are determined to scuttle this treaty in the Senate. They are also doing everything possible to undermine Obama’s move to isolate Israel, principally by shifting focus to Iran and away from settlement building in E. Jerusalem. The Republicans are opposing the President’s “smart sanctions” (targeting Iran’s leaders) in favor of their own “stupid sanctions” (targeting average Iranians, leaving the leaders unscathed and fostering anti-American sentiment). As in the late 30s, the Republicans are promoting a toxic foreign policy that the President must overcome. What’s really sad is the Republicans aren’t doing anything to stop runaway government spending. So what good are they?
Thursday, April 15, 2010
Long War Does Not Require Brute Force
Geopolitics: Gen. McChrystal has pulled all US soldiers and Marines out of the Korengal Valley, a remote mountainous enclave in northeastern Afghanistan nicknamed the valley of death. As is the case in nearby Nuristan province, Korengal has a strong tribal structure; neither Karzai’s government nor the Taliban hold sway over these fearsome tribesmen. When McChrystal pulled out of Nuristan, the tribes rose up and crushed the Taliban. This is likely to also occur in Korengal.
Indeed, anti-Taliban tribalism is the key to vanquishing the bad guys in Afpak. A tragic incident with the Pak Army illustrates this point. A Pak airstrike recently killed about 70 anti-Taliban tribesmen that were attacking a Taliban compound just as Pak jets were dropping their bombs. Obviously this is a huge blow to the war effort and shows how important intelligence is in the Long War. As good as Pak intelligence is it should have been better. The ISI should have known that good bad guys were attacking bad guys while the good guys were doing the same thing.
US intelligence officials are saying that Iran is closer to deploying nuclear weapons than previously thought, maybe 5 years away rather than 10. Opinion polls in the US show support for allowing Israel to launch an airstrike against Iranian weapon labs and installations. To have any hope of success, Israel would have to seize territory inside Saudi Arabia and build an airbase. This would magnify the Long War into a conventional war as big as WW II and shatter the world economy. A US airstrike against Iran wouldn’t be much better. The answer to the Iranian problem is for the US to strengthen its embryonic proto-alliance with Russia and allow our new ally to control Iran’s nuclear program. Iran can’t move forward without Russian help on nuclear weapons. The Iranian leadership must be turned into good bad guys through skillful American diplomacy with Russia. And on this score there is positive news, the situation in Kyrgyzstan is stabilizing and some cooperation is evident between Russia and the US. When Russia reinforced its airbase in Kyrgyzstan with elite Special Forces troops, the US humbly said it would start using an airbase in Kuwait to replace the Manas base in Kyrgyzstan, mollifying Russia. Now the Manas base is back in business. The Long War is not WW II. It requires smart chess playing, not brute force.
Indeed, anti-Taliban tribalism is the key to vanquishing the bad guys in Afpak. A tragic incident with the Pak Army illustrates this point. A Pak airstrike recently killed about 70 anti-Taliban tribesmen that were attacking a Taliban compound just as Pak jets were dropping their bombs. Obviously this is a huge blow to the war effort and shows how important intelligence is in the Long War. As good as Pak intelligence is it should have been better. The ISI should have known that good bad guys were attacking bad guys while the good guys were doing the same thing.
US intelligence officials are saying that Iran is closer to deploying nuclear weapons than previously thought, maybe 5 years away rather than 10. Opinion polls in the US show support for allowing Israel to launch an airstrike against Iranian weapon labs and installations. To have any hope of success, Israel would have to seize territory inside Saudi Arabia and build an airbase. This would magnify the Long War into a conventional war as big as WW II and shatter the world economy. A US airstrike against Iran wouldn’t be much better. The answer to the Iranian problem is for the US to strengthen its embryonic proto-alliance with Russia and allow our new ally to control Iran’s nuclear program. Iran can’t move forward without Russian help on nuclear weapons. The Iranian leadership must be turned into good bad guys through skillful American diplomacy with Russia. And on this score there is positive news, the situation in Kyrgyzstan is stabilizing and some cooperation is evident between Russia and the US. When Russia reinforced its airbase in Kyrgyzstan with elite Special Forces troops, the US humbly said it would start using an airbase in Kuwait to replace the Manas base in Kyrgyzstan, mollifying Russia. Now the Manas base is back in business. The Long War is not WW II. It requires smart chess playing, not brute force.
Wednesday, April 14, 2010
Free Market Fascism
Charts: The S&P 500 closed at 1211, up 1.1%. The index opened above the 1200 resistance level. In the morning it dropped and successfully tested 1200 and then rocked up, bullish chart action. Our next big Fibonacci resistance number is looming at 1240. This is also about where Goldman Sachs says fair value is for the broad index.
Specific Stocks: Singapore is led by a pro-capitalist dictator with a genius-level IQ (the Minister Mentor or MM). He only intervenes in the private sector to make individual companies more profitable. For instance, it is perfectly legal for Singapore Airlines to discriminate against men and average-looking women in favor of beautiful women when hiring flight attendants. But one day the MM noticed that some Singapore Girls weren’t properly filling out their uniforms, so he told the executives to hire even sexier attendants. The country needed a new airport and the only site was an ancient cemetery, revered by the locals. In a democracy the new airport wouldn’t get built. In Singapore the cemetery is bulldozed without fanfare. When western governments are making it quasi-illegal for banks to trade derivatives and slashing bank executive salaries, the MM sees an opportunity and builds a high speed electronic trading platform and offers overseas bank executives bonuses to poach talent from foolish rival countries.
Singapore’s government is a kind of pro-American Fascism. As was the case in Hitler’s Fascist Germany, Singapore practices Eugenics, the scientific breeding of people. Unlike Hitler, the MM doesn’t mindlessly select for eye and hair color, but intelligence, ambition, and multi-racial genetic diversity. Like the old school Fascists, MM spends more on his military as a percent of GDP than any other country and the result is an American ally with fearsome capability.
Does pure free market Fascism work? Last night Singapore announced its GDP grew in Q1 by a mind blowing 32.1%. Manufacturing output was up an unbelievable 139%. The Singapore index (EWS) was up 4% today.
It’s time to consider industrial late-bloomers, companies that will kick into gear at the mid-point in an industrial boom. Last time I broached this topic I mentioned GTI and HSC. Today let’s talk about Wabtec (WAB), a company that manufactures brakes for locomotives and railcars. WAB also makes entire locomotives and railroad signaling equipment. This is all stuff that wears out and needs replacing at the mid-point in a railroad boom. WAB has a big presence in China and India.
Specific Stocks: Singapore is led by a pro-capitalist dictator with a genius-level IQ (the Minister Mentor or MM). He only intervenes in the private sector to make individual companies more profitable. For instance, it is perfectly legal for Singapore Airlines to discriminate against men and average-looking women in favor of beautiful women when hiring flight attendants. But one day the MM noticed that some Singapore Girls weren’t properly filling out their uniforms, so he told the executives to hire even sexier attendants. The country needed a new airport and the only site was an ancient cemetery, revered by the locals. In a democracy the new airport wouldn’t get built. In Singapore the cemetery is bulldozed without fanfare. When western governments are making it quasi-illegal for banks to trade derivatives and slashing bank executive salaries, the MM sees an opportunity and builds a high speed electronic trading platform and offers overseas bank executives bonuses to poach talent from foolish rival countries.
Singapore’s government is a kind of pro-American Fascism. As was the case in Hitler’s Fascist Germany, Singapore practices Eugenics, the scientific breeding of people. Unlike Hitler, the MM doesn’t mindlessly select for eye and hair color, but intelligence, ambition, and multi-racial genetic diversity. Like the old school Fascists, MM spends more on his military as a percent of GDP than any other country and the result is an American ally with fearsome capability.
Does pure free market Fascism work? Last night Singapore announced its GDP grew in Q1 by a mind blowing 32.1%. Manufacturing output was up an unbelievable 139%. The Singapore index (EWS) was up 4% today.
It’s time to consider industrial late-bloomers, companies that will kick into gear at the mid-point in an industrial boom. Last time I broached this topic I mentioned GTI and HSC. Today let’s talk about Wabtec (WAB), a company that manufactures brakes for locomotives and railcars. WAB also makes entire locomotives and railroad signaling equipment. This is all stuff that wears out and needs replacing at the mid-point in a railroad boom. WAB has a big presence in China and India.
Tuesday, April 13, 2010
CIA Has Finger In Sudanese Pie
Charts: The S&P 500 closed at, 1197, up .07%. The index dropped in early going, hit support at 1190, and bounced up, good chart action. Resistance is at 1200. Yield on the ten-year note keeps going down (bullish for both stocks and bonds). Today is day 2 for the Dow trading above 11,000. Equity volume is horrible, but it must be horrible to support the bond market. Ultimately, geopolitics is supporting the US bond market.
Fundamentals: In 8 months the Bush tax cuts expire, the equivalent of a tax hike. And taxes will steadily rise every year after 2011 as far as the eye can see, choking the private sector. Businesses and individuals are bringing purchases, income, and activity forward into 2010 to beat the gathering tax tsunami, making hay while the sun shines. This will artificially juice the economy for the next few months. Someday there will be a hangover of epic proportion but for now the party continues.
Geopolitics: VP Joe Biden has a big mouth, lucky for us. Biden says that Iraqi Intelligence has not cooperated closely with the CIA in the past but is changing gears and reaching out to its American sister agency. Last week Iraqi counterterrorism operations increased fourfold. After the big election, Al-Qaeda in Iraq launched several big terror strikes against both Sunni and Shiite targets, an attempt to reignite sectarian war. It didn’t work and only forced the good guys to get serious about hunting down the bad guys.
The loser of the election, Maliki, tried several anti-democratic moves to cling to power such as a rigged vote recount and disqualifying candidates he doesn’t like by claiming they are former Baathists. Grand Ayatollah Sistani says he won’t put up with this nonsense and that effectively ends it since defying the Grand Ayatollah would be suicide for Maliki.
It’s almost as if the CIA has handpicked Allawi as the next leader of Iraq. There is evidence that the same thing is happening in the impending elections in Sudan. Jimmy Carter is in Sudan monitoring these elections. The former President says the election is shaping up to be reasonably honest and the current Islamist dictator (a good bad guy), al-Bashir, is likely to win. Al-Bashir is supposedly willing to allow a referendum in a few months that will see southern Sudan split off and form a separate country, which should end the nearly century-long Sudanese civil war. Al-Bashir’s enemies uniformly call him a “CIA stooge,” that plus the fact he is pursuing a host of pro-American policies is strong evidence that the Agency has a finger in the pie.
And the CIA is doing a good job along the Afpak border region where one of its drones killed 5 Taliban leaders yesterday. While the Hellfire missiles were flying, the Pak Army was busy killing several dozen bad guys up and down the length of the border region, a daily occurrence.
Specific Stocks: Private equity firm Cerberus bought small defense company DynCorp yesterday, paying a 50% premium. DynCorp is levered to the Long War. Cerberus is saying that the Long War will last a long time. ITT and CUB are similar to DynCorp. And don’t forget RTN (my favorite).
I am building a position in LTD, maker of Victoria’s Secret lingerie and Body Works. For years LTD wouldn’t make plus size woman’s apparel. It does so now but with the illusion that it does not. Lulu Lemon (LULU, maker of high end women’s athletic apparel) is also pursuing this strategy, to great success. LTD has strong value metrics such as cash flow.
Fundamentals: In 8 months the Bush tax cuts expire, the equivalent of a tax hike. And taxes will steadily rise every year after 2011 as far as the eye can see, choking the private sector. Businesses and individuals are bringing purchases, income, and activity forward into 2010 to beat the gathering tax tsunami, making hay while the sun shines. This will artificially juice the economy for the next few months. Someday there will be a hangover of epic proportion but for now the party continues.
Geopolitics: VP Joe Biden has a big mouth, lucky for us. Biden says that Iraqi Intelligence has not cooperated closely with the CIA in the past but is changing gears and reaching out to its American sister agency. Last week Iraqi counterterrorism operations increased fourfold. After the big election, Al-Qaeda in Iraq launched several big terror strikes against both Sunni and Shiite targets, an attempt to reignite sectarian war. It didn’t work and only forced the good guys to get serious about hunting down the bad guys.
The loser of the election, Maliki, tried several anti-democratic moves to cling to power such as a rigged vote recount and disqualifying candidates he doesn’t like by claiming they are former Baathists. Grand Ayatollah Sistani says he won’t put up with this nonsense and that effectively ends it since defying the Grand Ayatollah would be suicide for Maliki.
It’s almost as if the CIA has handpicked Allawi as the next leader of Iraq. There is evidence that the same thing is happening in the impending elections in Sudan. Jimmy Carter is in Sudan monitoring these elections. The former President says the election is shaping up to be reasonably honest and the current Islamist dictator (a good bad guy), al-Bashir, is likely to win. Al-Bashir is supposedly willing to allow a referendum in a few months that will see southern Sudan split off and form a separate country, which should end the nearly century-long Sudanese civil war. Al-Bashir’s enemies uniformly call him a “CIA stooge,” that plus the fact he is pursuing a host of pro-American policies is strong evidence that the Agency has a finger in the pie.
And the CIA is doing a good job along the Afpak border region where one of its drones killed 5 Taliban leaders yesterday. While the Hellfire missiles were flying, the Pak Army was busy killing several dozen bad guys up and down the length of the border region, a daily occurrence.
Specific Stocks: Private equity firm Cerberus bought small defense company DynCorp yesterday, paying a 50% premium. DynCorp is levered to the Long War. Cerberus is saying that the Long War will last a long time. ITT and CUB are similar to DynCorp. And don’t forget RTN (my favorite).
I am building a position in LTD, maker of Victoria’s Secret lingerie and Body Works. For years LTD wouldn’t make plus size woman’s apparel. It does so now but with the illusion that it does not. Lulu Lemon (LULU, maker of high end women’s athletic apparel) is also pursuing this strategy, to great success. LTD has strong value metrics such as cash flow.
Monday, April 12, 2010
Democracy Is Good For Iraq
Geopolitics: While pushing democracy on Afghanistan and Somalia is a bad idea, democracy is working like a charm in Iraq. The CIA’s good buddy, Allawi, won the recent election by a whisker and he is cobbling together a coalition government, a process that will take a couple months. Allawi made two brilliant moves after the election: 1) He said the multitudinous oil contracts that his predecessor had hammered out with the world’s major energy companies will not be changed even though in the campaign he promised to scrap these deals and negotiate better ones. The existing contracts cannot be improved upon and can only be scrapped or left alone. If left alone, these contracts will increase Iraqi oil production by 12 times over the next 10 years, making Iraq the largest oil exporter in the world. The global recovery cannot continue without cheap oil. 2) Allawi reached out to the Iranian leadership and told them America will never launch an attack against Iran from Iraqi territory. The CIA maintains an anti-Iranian guerilla army in an encampment along the Iran/Iraq border; this would be the source of a US attack. With his vast CIA connections, Allawi is in a position to make good on such a promise. Shiite Iran now publically supports Allawi’s pro-Sunni political party, tacitly endorsing it as the leader in the coalescing jumble of parties that will form the new government. Iran’s former darling, Maqtada al-Sadr, is now sidelined. This is important because when Allawi was Prime Minister of Iraq the first time he (successfully) ordered the Iraqi Army to crush al-Sadr’s radical Shiite Mahdi Army, so the two men hate each other. Without Iranian backing al-Sadr should be toothless.
The Pak Army is killing an average of 15 bad guys a day starting a little more than three weeks ago. This offensive isn’t getting a lot of press but we must remember that the Taliban is like any other army or militia: kill enough bad guy fighters and the bad guys will lose the war. The Pak Army is executing a powerful offensive against the Taliban while at the same time running a large mechanized war game exercise on the Indian border. Backed by its superpower buddy, the Pak Army is a colossus, one of the largest, most effective and powerful armies on Earth.
The Pak Army is killing an average of 15 bad guys a day starting a little more than three weeks ago. This offensive isn’t getting a lot of press but we must remember that the Taliban is like any other army or militia: kill enough bad guy fighters and the bad guys will lose the war. The Pak Army is executing a powerful offensive against the Taliban while at the same time running a large mechanized war game exercise on the Indian border. Backed by its superpower buddy, the Pak Army is a colossus, one of the largest, most effective and powerful armies on Earth.
Friday, April 9, 2010
Russia & USA Must Prevent Civil War
Charts: The S&P 500 closed at 1194, up .7%. Resistance at 1190 was finally breached. The broad index crossed 1190 eight times today. Over the past few days it has repeatedly fought in and out of this battlefield resistance level. A hard fought battle like this is good chart action. Yield on the 10-year note was down today. It is retreating down away from 3.95%, so this resistance level is holding firm, good news.
Fundamentals: The short confession season is over and the long earnings season starts on Monday. The confession season is usually a very accurate predictor of the earnings season and since this confession season was about twice as strong as historical norms it is a safe bet that earnings season will also be very good. Nobody cares. The market is going up and down based on the prospects of Greece getting bailed out. Today the news (rumors) is that Greece will get bailed out after all; hence the rally.
Geopolitics: The government of Kyrgyzstan was overthrown two days ago by pro-democracy rebels. The rebel’s interim government has control over the army and the northern part of the country. It has only spotty control over the south and some parts of the national police force. The ousted president is holed up in the south, trying to gather enough firepower to start a civil war and retake control of the country.
Kyrgyzstan is sharply divided between the south and north. The south is poor, agrarian, Islamic, anti-Russian, and anti-democratic. The north is wealthier, industrialized, anti-Islamic, pro-Russian, and pro-democratic. The interim government is pro-American (since it is pro-democratic) and pro-Russian at the same time.
America’s gigantic Manos air base is in Kyrgyzstan, the most important supply base for the Afghan war, vital to the war effort. Russia also has a big air base in the country, which it is now reinforcing with elite troops. While the Kyrg. government was being overthrown, Russia and America were busy signing the new START treaty, marking the beginning of a proto-alliance. A full scale civil war will erupt in Kyrgyzstan unless Russia and America work together, a test of the proto-alliance. If the two great powers pass the test, it will be bullish; if not, very bearish and here’s why: Aborting the embryonic Russo-American proto-alliance will push Iran and Russia back into each others’ arms, shut down the flow of supplies to the USMC as it starts the big offensive in Kandahar, and heat up the already hot Islamic insurgency in Russia’s Caucasus region.
Specific Stocks: Don’t count your chickens before they hatch. Boeing thinks it is waltzing away with the $100 billion Air Force refueling tanker deal. EADS (A.K.A Airbus) is getting ready to put together a new competitive bid after its last one was shot down. The financial press reported that the Boeing proposal was favored over EADS because Boeing’s planes would be cheaper (dummies). As you will recall, this newsletter reported that Boeing’s proposal was actually favored because it featured superior anti-missile capability against Iran. In preparation for its new bid, EADS is talking to Raytheon (RTN) about forming a partnership and designing the new tanker together. Boeing is very good at anti-missile technology. Raytheon is better than Boeing. Raytheon is better than anybody.
Fundamentals: The short confession season is over and the long earnings season starts on Monday. The confession season is usually a very accurate predictor of the earnings season and since this confession season was about twice as strong as historical norms it is a safe bet that earnings season will also be very good. Nobody cares. The market is going up and down based on the prospects of Greece getting bailed out. Today the news (rumors) is that Greece will get bailed out after all; hence the rally.
Geopolitics: The government of Kyrgyzstan was overthrown two days ago by pro-democracy rebels. The rebel’s interim government has control over the army and the northern part of the country. It has only spotty control over the south and some parts of the national police force. The ousted president is holed up in the south, trying to gather enough firepower to start a civil war and retake control of the country.
Kyrgyzstan is sharply divided between the south and north. The south is poor, agrarian, Islamic, anti-Russian, and anti-democratic. The north is wealthier, industrialized, anti-Islamic, pro-Russian, and pro-democratic. The interim government is pro-American (since it is pro-democratic) and pro-Russian at the same time.
America’s gigantic Manos air base is in Kyrgyzstan, the most important supply base for the Afghan war, vital to the war effort. Russia also has a big air base in the country, which it is now reinforcing with elite troops. While the Kyrg. government was being overthrown, Russia and America were busy signing the new START treaty, marking the beginning of a proto-alliance. A full scale civil war will erupt in Kyrgyzstan unless Russia and America work together, a test of the proto-alliance. If the two great powers pass the test, it will be bullish; if not, very bearish and here’s why: Aborting the embryonic Russo-American proto-alliance will push Iran and Russia back into each others’ arms, shut down the flow of supplies to the USMC as it starts the big offensive in Kandahar, and heat up the already hot Islamic insurgency in Russia’s Caucasus region.
Specific Stocks: Don’t count your chickens before they hatch. Boeing thinks it is waltzing away with the $100 billion Air Force refueling tanker deal. EADS (A.K.A Airbus) is getting ready to put together a new competitive bid after its last one was shot down. The financial press reported that the Boeing proposal was favored over EADS because Boeing’s planes would be cheaper (dummies). As you will recall, this newsletter reported that Boeing’s proposal was actually favored because it featured superior anti-missile capability against Iran. In preparation for its new bid, EADS is talking to Raytheon (RTN) about forming a partnership and designing the new tanker together. Boeing is very good at anti-missile technology. Raytheon is better than Boeing. Raytheon is better than anybody.
Wednesday, April 7, 2010
Islamic Dictatorship Is Good
Charts: The S&P 500 closed at 1182, down .6%. Resistance for the broad index is stiff at 1190. Resistance for the Dow is even stiffer at 11,000. But yield on the 10-year note broke through support at 3.95%, which is helpful. Yesterday the VIX (fear gauge) hit a 2 ½ year low, signaling complacency.
Fundamentals: Fear of Greek debt default has flared up again. This is pushing yield on the US treasury 10-year note lower, which is both good and bad, or to put it another way—the threat of Greece defaulting is okay but an actual default would be catastrophic. China is getting ready to allow its currency to rise; again a mixed bag. It will help America and other countries export into China but it means China will buy less American debt and since Congress is still ramping up spending, interest rates will eventually be forced up. Also, any hint of China tightening terrifies investors.
Geopolitics: Afghan President Karzai’s recent behavior isn’t that bizarre if we review Afghan history. The initial US invasion after 9/11 was led by the CIA. The Agency entered the country with suitcases stuffed with hundreds of millions of dollars. The Taliban’s arch-enemy, the Northern Alliance (NA), was given weapons, leadership from Special Forces, and cash. After the NA crushed the bad guys, the strongest war lord in every little valley was given gobs of CIA cash so long as he adopted an anti-Taliban stance. The CIA’s original idea was to build a government around the war lords and the Northern Alliance led by Karzai, who is a Pushtun with long standing ties to the CIA. The Taliban are also Pushtun. Very few Northern Alliance members are Pushtun, so Karzai was the right choice.
The original plan worked great until it was screwed with. The IMF says that in 2004 Afghanistan’s GDP grew by 30%, faster than any other country. With the CIA in charge, the war lords were getting rich and the Taliban was being rooted out. Then the Bush Administration began an anti-war lord campaign, an anti-opium campaign (source of GDP growth), and the first presidential election was held. The result was that opium continued to be produced but the money went to a newly invigorated Taliban, not US allied war lords. The economy fell apart. It will be hard to put the genie back in the bottle; i.e., put the CIA in charge of a tribal based war lord alliance.
Recent events in Somalia illustrate a lesson learned from the mistakes made in Afghanistan. Right now Al-Shabab is engaged in heavy fighting with CIA backed Islamic militia Ahlu Sunnah. The war has been flaring up in Somalia for several days now. Al Shabab has lost every battle fought against Ahlu Sunnah so far. The CIA has been quietly letting Ahlu Sunnah take over the Somali government. A Sufi Islamic dictatorship is evolving in Somalia (how undemocratic!). None of this is being reported by the Western media and that’s why the policy is working.
Fundamentals: Fear of Greek debt default has flared up again. This is pushing yield on the US treasury 10-year note lower, which is both good and bad, or to put it another way—the threat of Greece defaulting is okay but an actual default would be catastrophic. China is getting ready to allow its currency to rise; again a mixed bag. It will help America and other countries export into China but it means China will buy less American debt and since Congress is still ramping up spending, interest rates will eventually be forced up. Also, any hint of China tightening terrifies investors.
Geopolitics: Afghan President Karzai’s recent behavior isn’t that bizarre if we review Afghan history. The initial US invasion after 9/11 was led by the CIA. The Agency entered the country with suitcases stuffed with hundreds of millions of dollars. The Taliban’s arch-enemy, the Northern Alliance (NA), was given weapons, leadership from Special Forces, and cash. After the NA crushed the bad guys, the strongest war lord in every little valley was given gobs of CIA cash so long as he adopted an anti-Taliban stance. The CIA’s original idea was to build a government around the war lords and the Northern Alliance led by Karzai, who is a Pushtun with long standing ties to the CIA. The Taliban are also Pushtun. Very few Northern Alliance members are Pushtun, so Karzai was the right choice.
The original plan worked great until it was screwed with. The IMF says that in 2004 Afghanistan’s GDP grew by 30%, faster than any other country. With the CIA in charge, the war lords were getting rich and the Taliban was being rooted out. Then the Bush Administration began an anti-war lord campaign, an anti-opium campaign (source of GDP growth), and the first presidential election was held. The result was that opium continued to be produced but the money went to a newly invigorated Taliban, not US allied war lords. The economy fell apart. It will be hard to put the genie back in the bottle; i.e., put the CIA in charge of a tribal based war lord alliance.
Recent events in Somalia illustrate a lesson learned from the mistakes made in Afghanistan. Right now Al-Shabab is engaged in heavy fighting with CIA backed Islamic militia Ahlu Sunnah. The war has been flaring up in Somalia for several days now. Al Shabab has lost every battle fought against Ahlu Sunnah so far. The CIA has been quietly letting Ahlu Sunnah take over the Somali government. A Sufi Islamic dictatorship is evolving in Somalia (how undemocratic!). None of this is being reported by the Western media and that’s why the policy is working.
Tuesday, April 6, 2010
Democracy Is Bad For Afghanistan
Charts: The S&P 500 closed at 1189, up .2% on the day and 1% on the week. Resistance is at 1190. The Dow is facing stiff resistance at 11,000, which is holding the broad index back. Yield on the 10-year note blew past resistance of 3.95% Monday (scary) but fortunately the 4% danger zone is providing substantial resistance so far. The charts are bullish so long as yield on the ten-year stays under control.
Fundamentals: Since the beginning of the year, the government’s household survey shows the US economy created 1.1 million jobs. The payroll survey on the other hand shows a net loss of jobs. The household survey is more accurate because it captures small and micro-sized businesses, which the payroll survey ignores. The household survey also shows discouraged unemployed workers looking for jobs in huge numbers, this is a first since the recovery began a year ago and a sign that the labor markets are turning around. The Senate and the House have both passed extensions to unemployment benefits but are unable to reconcile the two different bills. If they can’t reconcile, then unemployment extensions will stop. Discouraged workers will only keep looking for jobs if benefits dry up. This very much needs to happen for the recovery to continue.
Geopolitics: For 1979 to 1989, the Soviets occupied Afghanistan and deliberately weakened the country’s tribal structure. From the early 90s to 2001, the Taliban did the same thing, systematically weakened the tribes. After 2001, the Bush Administration and the Taliban each controlled different parts of the country and they both continued weakening the tribes for different reasons. For 30 years the Afghan tribes have been eviscerated and enfeebled. For America to win its war, Afghanistan needs to develop back into a tribal society, then a feudal society, and someday in the distant future: democratic capitalism.
President Karzai is calling the US Army an occupying force and threatening to join the Taliban if he isn’t allowed to run phony-baloney rigged elections. Karzai (rightfully) hates democracy and wants to be a tribal overlord. Unfortunately, Afghan tribalism can only be built from the bottom up, not the top down. The USMC is doing just that in Marja, where they pay money directly to local tribal leaders who then disburse it within their clan. Fearful of the strengthening effect this has on Marja’s tribal structure, the Taliban tries to kill any tribal leader who accepts money from the Marines. In central Marja, the tribal leaders are safe and tribal structures are firming up. In northern Marja, a large percentage of the local leaders are being killed or brutalized.
Here is proof that everything depends on rebuilding Afghan’s tribes and not holding any more elections: In the most remote northeastern corner of the country there is a province called Nuristan where the tribes were never destroyed, not even the British in the 19th century could scratch these fiercely independent tribesmen. In a brilliant move, a few months ago, General McChrystal pulled all NATO forces out of Nuristan. Within short order the Nuristani killed every Taliban fighter in their province. If every Afghan province had tribes as strong as those in Nuristan, the Taliban would cease to exist in about 2 months. Elections massively hinder this goal.
Karzai needs to be mollified by having elections indefinitely postponed. Obama knows this and can hopefully keep Congress and the UN out of the loop.
Fundamentals: Since the beginning of the year, the government’s household survey shows the US economy created 1.1 million jobs. The payroll survey on the other hand shows a net loss of jobs. The household survey is more accurate because it captures small and micro-sized businesses, which the payroll survey ignores. The household survey also shows discouraged unemployed workers looking for jobs in huge numbers, this is a first since the recovery began a year ago and a sign that the labor markets are turning around. The Senate and the House have both passed extensions to unemployment benefits but are unable to reconcile the two different bills. If they can’t reconcile, then unemployment extensions will stop. Discouraged workers will only keep looking for jobs if benefits dry up. This very much needs to happen for the recovery to continue.
Geopolitics: For 1979 to 1989, the Soviets occupied Afghanistan and deliberately weakened the country’s tribal structure. From the early 90s to 2001, the Taliban did the same thing, systematically weakened the tribes. After 2001, the Bush Administration and the Taliban each controlled different parts of the country and they both continued weakening the tribes for different reasons. For 30 years the Afghan tribes have been eviscerated and enfeebled. For America to win its war, Afghanistan needs to develop back into a tribal society, then a feudal society, and someday in the distant future: democratic capitalism.
President Karzai is calling the US Army an occupying force and threatening to join the Taliban if he isn’t allowed to run phony-baloney rigged elections. Karzai (rightfully) hates democracy and wants to be a tribal overlord. Unfortunately, Afghan tribalism can only be built from the bottom up, not the top down. The USMC is doing just that in Marja, where they pay money directly to local tribal leaders who then disburse it within their clan. Fearful of the strengthening effect this has on Marja’s tribal structure, the Taliban tries to kill any tribal leader who accepts money from the Marines. In central Marja, the tribal leaders are safe and tribal structures are firming up. In northern Marja, a large percentage of the local leaders are being killed or brutalized.
Here is proof that everything depends on rebuilding Afghan’s tribes and not holding any more elections: In the most remote northeastern corner of the country there is a province called Nuristan where the tribes were never destroyed, not even the British in the 19th century could scratch these fiercely independent tribesmen. In a brilliant move, a few months ago, General McChrystal pulled all NATO forces out of Nuristan. Within short order the Nuristani killed every Taliban fighter in their province. If every Afghan province had tribes as strong as those in Nuristan, the Taliban would cease to exist in about 2 months. Elections massively hinder this goal.
Karzai needs to be mollified by having elections indefinitely postponed. Obama knows this and can hopefully keep Congress and the UN out of the loop.
Saturday, April 3, 2010
It Pays To Lose A War
Geopolitics: Since Thursday the Israeli Air Force has attacked five different sites in the Gaza Strip, laying down heavy barrages of bombs and missiles. At the same time, Hamas is firing rockets into Israel; a mini-war is raging in this theater of the Long War. Who are the good guys? The answer: both sides will probably end up being good guys eventually. Here’s why…
On Friday word leaked out that President Obama has “unofficially” been sending retired American ambassadors to meet and negotiate with the leaders of Hamas over the past few months; America has never done this before. Along the same lines, a currently employed (but on vacation) US diplomat met with a Hamas leader in London for a debate sponsored by the Al Jazeera TV channel, a move bordering on diplomatic recognition. Obama is also sending Sen. John Kerry to negotiate with the president of Syria. The US is reaching out to its former Arab enemies in the Israeli/Arab dispute and turning them into friends. Israel, in turn, will become an American enemy unless it switches gears.
Israel might be grabbing the shifter despite its aggression in Gaza. On Friday and Saturday, violence flared in the West Bank as Israeli settlers began a series of demonstrations designed to trigger a violent reaction from the Palestinians and force the Israeli Army to shed Arab blood. The Israeli Army clashed with Palestinians, as we might expect, but it also clashed with the settlers, the undisputed bad guys in the whole mess.
The Israeli Army firing rubber bullets on West Bank settlers is bullish. If Israel is humiliated in its mini-war with Hamas as it was in its war against Hezbollah/Lebanon in 2006, then the Israeli stock market will rock upward. This leads us to a broader principle: any war that results in American interests prevailing is bullish for stocks and the opposite is also true.
If a country wins a war that America wants it to lose, then that country’s stock market will collapse. For instance, Russia won a war against Georgia and Russia’s stock market fell a staggering 75%. What if a country loses a war that America wants it to lose? Iran has in fact been losing its long running cold war against the West and its losses are getting worse. Recently, Russia is starting to lean against Iran. This means more sanctions. That should clobber Iran’s stock market. But Iranian stocks are soaring. It pays to lose a war against the US. Just ask Germany and Japan.
On Friday word leaked out that President Obama has “unofficially” been sending retired American ambassadors to meet and negotiate with the leaders of Hamas over the past few months; America has never done this before. Along the same lines, a currently employed (but on vacation) US diplomat met with a Hamas leader in London for a debate sponsored by the Al Jazeera TV channel, a move bordering on diplomatic recognition. Obama is also sending Sen. John Kerry to negotiate with the president of Syria. The US is reaching out to its former Arab enemies in the Israeli/Arab dispute and turning them into friends. Israel, in turn, will become an American enemy unless it switches gears.
Israel might be grabbing the shifter despite its aggression in Gaza. On Friday and Saturday, violence flared in the West Bank as Israeli settlers began a series of demonstrations designed to trigger a violent reaction from the Palestinians and force the Israeli Army to shed Arab blood. The Israeli Army clashed with Palestinians, as we might expect, but it also clashed with the settlers, the undisputed bad guys in the whole mess.
The Israeli Army firing rubber bullets on West Bank settlers is bullish. If Israel is humiliated in its mini-war with Hamas as it was in its war against Hezbollah/Lebanon in 2006, then the Israeli stock market will rock upward. This leads us to a broader principle: any war that results in American interests prevailing is bullish for stocks and the opposite is also true.
If a country wins a war that America wants it to lose, then that country’s stock market will collapse. For instance, Russia won a war against Georgia and Russia’s stock market fell a staggering 75%. What if a country loses a war that America wants it to lose? Iran has in fact been losing its long running cold war against the West and its losses are getting worse. Recently, Russia is starting to lean against Iran. This means more sanctions. That should clobber Iran’s stock market. But Iranian stocks are soaring. It pays to lose a war against the US. Just ask Germany and Japan.
Thursday, April 1, 2010
Please Trust CIA
Charts: The S&P 500 closed at 1178, up .7%. The broad index has tested support successfully at 1170 several times over the past few days, good chart action. FXI (Chinese blue chip index) is trading well above its 200-day moving average, bullish for emerging markets. Oil has broken up above $83 a barrel. This is a problem. Yield on the 10-year note is trading below 3.95%, so good so far.
Fundamentals: Industrial data from every major economy came in stronger than expected, led by China. About 45% of the world’s steel is consumed by China but Chinese buildings do not have enough steel in them because of weak building codes and corrupt code enforcement. China will soon consume 50% of the world’s steel. The rest of emerging Asia needs more steel as well. SLX (the steel index) is up 31% in the last six months. Graftech (GTI) is down 4% over that time period. GTI makes the multi-ton graphite electrodes and graphite kiln liners used in electric arc steel mills: they wear out and need replacing at the midpoint in a steel boom, not the early phase. So GTI is a late bloomer. Harsco (HSC) is a steel mill service provider, also a late bloomer.
Geopolitics: In Pakistan’s tribal lands near NATO supply lines, the Taliban attacked two Pak Army forts in platoon-sized units that featured guns, rockets, and explosive laden suicide vehicles, conventional warfare tactics. 25 bad guys were killed. 6 good guys were killed and 30 seriously wounded.
In Indian held Kashmir, over the past few days there have been 3 battles between Taliban fighters and the Indian Army resulting in 4 dead Indian soldiers and 12 dead bad guys. We are seeing the Taliban going on the offensive and racking up surprisingly high kill ratios.
In N. Waziristan, CIA drones killed 6 bad guys. We don’t know if these bad guys are members of the N. Waziristan Taliban (Hezb-e-Islami) but we do know that the N. Waziristan Taliban met with Karzai’s government Tuesday for more peace talks and that the CIA is trying to literally blow apart these negotiations with Hellfire missiles. Yesterday’s drone strikes hit an abandoned school and a compound owned by local tribesmen (not owned by the Taliban). Therefore, whoever is being targeted by the CIA is on the run, digging down deep, acting as if they have been hit many times before. So it probably is the peace-talking N. Waziristan Taliban. The US State Dept. and Army are more tolerant of these peace talks than the CIA. But consider: The N. Waziristan Taliban has far deeper CIA ties than any other Taliban. These ties were developed during the 80s in the Afghan war against the Soviets. So the CIA knows the N. Waziristan Taliban much better than the State Dept. or Army. We should trust the CIA’s judgment.
Fundamentals: Industrial data from every major economy came in stronger than expected, led by China. About 45% of the world’s steel is consumed by China but Chinese buildings do not have enough steel in them because of weak building codes and corrupt code enforcement. China will soon consume 50% of the world’s steel. The rest of emerging Asia needs more steel as well. SLX (the steel index) is up 31% in the last six months. Graftech (GTI) is down 4% over that time period. GTI makes the multi-ton graphite electrodes and graphite kiln liners used in electric arc steel mills: they wear out and need replacing at the midpoint in a steel boom, not the early phase. So GTI is a late bloomer. Harsco (HSC) is a steel mill service provider, also a late bloomer.
Geopolitics: In Pakistan’s tribal lands near NATO supply lines, the Taliban attacked two Pak Army forts in platoon-sized units that featured guns, rockets, and explosive laden suicide vehicles, conventional warfare tactics. 25 bad guys were killed. 6 good guys were killed and 30 seriously wounded.
In Indian held Kashmir, over the past few days there have been 3 battles between Taliban fighters and the Indian Army resulting in 4 dead Indian soldiers and 12 dead bad guys. We are seeing the Taliban going on the offensive and racking up surprisingly high kill ratios.
In N. Waziristan, CIA drones killed 6 bad guys. We don’t know if these bad guys are members of the N. Waziristan Taliban (Hezb-e-Islami) but we do know that the N. Waziristan Taliban met with Karzai’s government Tuesday for more peace talks and that the CIA is trying to literally blow apart these negotiations with Hellfire missiles. Yesterday’s drone strikes hit an abandoned school and a compound owned by local tribesmen (not owned by the Taliban). Therefore, whoever is being targeted by the CIA is on the run, digging down deep, acting as if they have been hit many times before. So it probably is the peace-talking N. Waziristan Taliban. The US State Dept. and Army are more tolerant of these peace talks than the CIA. But consider: The N. Waziristan Taliban has far deeper CIA ties than any other Taliban. These ties were developed during the 80s in the Afghan war against the Soviets. So the CIA knows the N. Waziristan Taliban much better than the State Dept. or Army. We should trust the CIA’s judgment.
Wednesday, March 31, 2010
World's Most Dangerous Bad Guy
Geopolitics: The title of most dangerous bad guy on the planet now goes to Doku Umarov, leader of the Chechen Islamic revolution in Russia’s North Caucasus region. Umarov ordered the twin suicide bombings in Moscow 2 days ago and today 11 people (including several police officers) were killed in Dagestan, a N. Caucasus region boiling with a low level but steadily increasing Islamic insurgency. The number of deaths at the hands of insurgents in Dagestan has doubled year over year and is set to double again this year.
This is what Umarov is saying on his website: “As you all know on March 29 in Moscow, two special operations were carried out to destroy the infidels and send a greeting to the FSB.” FSB is the new name for KGB.
The Chechen insurgency was originally motivated by nationalism and the desire for a separate (non-Russian) nation based on ethnicity. Under Umarov’s leadership the movement is now based purely on radical Islam, the desire for a Taliban style government that encompasses the N. Caucasus region. Umarov talks constantly of establishing a “Caliphate.” I think he is successfully trying to lock in his leadership role in front of a gigantic influx of bad guys from the Afpak region. And here’s why:
Combing the Pak media for Tuesday’s body count is frustrating because so many bad guys are getting killed nobody can accurately count them. Pak Air Force jets, Pak Army helicopters and artillery killed about 60 bad guys on Tuesday. Pakistan’s tribal lands have become a bad guy meat grinder.
The long term danger is that the good guys declare victory at some point in Afpak and ignore the deteriorating situation in the peripheral battle zones of the Long War. The short term danger is the bad guys attack Russia's energy pipelines into Europe, cutting off supplies, and triggering huge price increases worldwide.
This is what Umarov is saying on his website: “As you all know on March 29 in Moscow, two special operations were carried out to destroy the infidels and send a greeting to the FSB.” FSB is the new name for KGB.
The Chechen insurgency was originally motivated by nationalism and the desire for a separate (non-Russian) nation based on ethnicity. Under Umarov’s leadership the movement is now based purely on radical Islam, the desire for a Taliban style government that encompasses the N. Caucasus region. Umarov talks constantly of establishing a “Caliphate.” I think he is successfully trying to lock in his leadership role in front of a gigantic influx of bad guys from the Afpak region. And here’s why:
Combing the Pak media for Tuesday’s body count is frustrating because so many bad guys are getting killed nobody can accurately count them. Pak Air Force jets, Pak Army helicopters and artillery killed about 60 bad guys on Tuesday. Pakistan’s tribal lands have become a bad guy meat grinder.
The long term danger is that the good guys declare victory at some point in Afpak and ignore the deteriorating situation in the peripheral battle zones of the Long War. The short term danger is the bad guys attack Russia's energy pipelines into Europe, cutting off supplies, and triggering huge price increases worldwide.
Tuesday, March 30, 2010
The CIA's War
Editor's Note: Today's newsletter goes out before the bell.
Geopolitics: The Moscow terror bombing yesterday struck a subway station right next to FSB (new name for KGB) headquarters. The location of the attack sent a clear message: Russia’s intelligence agency is the bad guys’ main enemy, not the Russian Army. A similar message came out of a recent Pentagon update of its planned offensive in Kandahar. The Pentagon is saying that it needs more intelligence and less firepower to secure the city. In fact the Pentagon is now saying there won’t actually be an offensive in Kandahar in the traditional sense of the word, rather a massive armed infiltration.
The salient feature of the Cold War was nuclear weapons. In many ways the US Air Force was the most important branch of the armed services back then. The Air Force is the least important branch in the Long War. Originally the Pentagon had the Air Force operating drones. This has proven to be impractical and drones have since migrated to the Army and the CIA. In truth the Long War is the CIA’s war. It is vastly more important than conventional forces. What it needs the most is darkness, which is to say no oversight and no civilian meddling. Think of the CIA as a free market economy that flourishes best without interference.
Geopolitics: The Moscow terror bombing yesterday struck a subway station right next to FSB (new name for KGB) headquarters. The location of the attack sent a clear message: Russia’s intelligence agency is the bad guys’ main enemy, not the Russian Army. A similar message came out of a recent Pentagon update of its planned offensive in Kandahar. The Pentagon is saying that it needs more intelligence and less firepower to secure the city. In fact the Pentagon is now saying there won’t actually be an offensive in Kandahar in the traditional sense of the word, rather a massive armed infiltration.
The salient feature of the Cold War was nuclear weapons. In many ways the US Air Force was the most important branch of the armed services back then. The Air Force is the least important branch in the Long War. Originally the Pentagon had the Air Force operating drones. This has proven to be impractical and drones have since migrated to the Army and the CIA. In truth the Long War is the CIA’s war. It is vastly more important than conventional forces. What it needs the most is darkness, which is to say no oversight and no civilian meddling. Think of the CIA as a free market economy that flourishes best without interference.
Monday, March 29, 2010
Hellacious Whack-a-mole In 2 Years
Charts: The S&P 500 closed at 1173, up .6%. The index opened above 1170 and in early going it dropped, found support at 1170 and bounced above this key level. This is good chart action but volume was iffy. FXI (Chinese blue chips) closed above its 200-day moving average in good volume. So far in March it has crossed the 200-day line 7 times. If FXI trades above this level for four days in a row it will be technically significant and bullish for global stock markets. Yield on the US Treasury ten-year note ticked up a tiny bit but stayed below long term technical level of 3.95%. Last Thursday it hit this resistance level, bounced down and has stayed below ever since. It needs to stay below 3.95% this week. The dollar was down sharply today, a good sign.
Fundamentals: On Monday Greece successfully sold $6.7 billion worth of debt. This is why the dollar came down, emerging markets rallied, and the whole financial world heaved a sigh of relief.
Geopolitics: Six days ago the Pak Army launched an offensive against the Pak Taliban in a northern region of the tribal lands. The offensive has killed huge numbers of bad guys to date. Pak media reports claim that between 11 and 22 bad guys were killed on Sunday. Pak media also reports the deal for transferring drone technology from the CIA to the ISI has been finalized and the good guys in Pakistan are overjoyed at this terrific news.
There is no question that the bad guys are taking it on the chin in the Long War’s central battle zone in Afpak. But in the periphery battle zones of the Long War, far away from Afpak, the bad guys are doing much better. Over the weekend 38 civilians were killed in Moscow by Caucus based Islamic terrorists. Two Moscow subway stations were obliterated by female suicide bombers. Not good. Thousands of miles from Russia, the authoritative newsletter Intelligence Online, reports that Yemeni intelligence has been completely infiltrated by AQAP. This goes a long way to explaining why AQAP has been able to send so many terrorists into Saudi Arabia recently. Finally, Sudanese rebels claim to have shot down two army helicopters near Darfur, straining the recently announced peace treaty.
The Afpak theater has a long ways to go before victory can be declared. Way before then the CIA must get a better grip on the vast regions on the periphery of the Long War because someday there will be a hellacious whack-a-mole effect.
Fundamentals: On Monday Greece successfully sold $6.7 billion worth of debt. This is why the dollar came down, emerging markets rallied, and the whole financial world heaved a sigh of relief.
Geopolitics: Six days ago the Pak Army launched an offensive against the Pak Taliban in a northern region of the tribal lands. The offensive has killed huge numbers of bad guys to date. Pak media reports claim that between 11 and 22 bad guys were killed on Sunday. Pak media also reports the deal for transferring drone technology from the CIA to the ISI has been finalized and the good guys in Pakistan are overjoyed at this terrific news.
There is no question that the bad guys are taking it on the chin in the Long War’s central battle zone in Afpak. But in the periphery battle zones of the Long War, far away from Afpak, the bad guys are doing much better. Over the weekend 38 civilians were killed in Moscow by Caucus based Islamic terrorists. Two Moscow subway stations were obliterated by female suicide bombers. Not good. Thousands of miles from Russia, the authoritative newsletter Intelligence Online, reports that Yemeni intelligence has been completely infiltrated by AQAP. This goes a long way to explaining why AQAP has been able to send so many terrorists into Saudi Arabia recently. Finally, Sudanese rebels claim to have shot down two army helicopters near Darfur, straining the recently announced peace treaty.
The Afpak theater has a long ways to go before victory can be declared. Way before then the CIA must get a better grip on the vast regions on the periphery of the Long War because someday there will be a hellacious whack-a-mole effect.
Friday, March 26, 2010
Pak Army Kills 156 Bad Guys
Charts: The S&P 500 closed at 1167, up a fraction. The dollar was down today as were treasury yields. Both weakened into the close, good technically. FXI (Chinese blue chips) jumped 2% and is 1% away from the 200-day moving average. Today was a better chart day than the flat reading from the American index would lead you to believe.
Geopolitics: Today was proof of how geopolitics can rock world markets. The final bailout package for Greece clicked into place and the market was poised to rally when a South Korean warship suffered an explosion in its hull and started sinking in a fishing zone that has often seen North and South Koreas' navies clash. The S. Korean Navy combed the area with radar. They got a reading and fired forward guns (shoot first ask questions later). The reading turned out to be a flock of birds. Several birds were vaporized. There was no sign of North Korean warships. As traders began to digest the implications of the S. Korean Navy not finding any bad guys, global markets started to recover hesitantly.
The Russian stock market popped up while all this was going on because Hillary’s nuclear arms reduction treaty was finalized. Russian ADRs soared 2% even though the price of oil was down today. There is something like an 80% correlation between Russian stocks and oil.
Meanwhile, the media is ignoring the real geopolitical news of the last few days. The Pak Army has been advancing on a Taliban stronghold in the tribal lands that border N. Waziristan. In three days it has killed about 90 bad guys. On Friday, the Pak Air Force killed 66 bad guys. Bad guys are getting chewed up by the Pak Army and this probably explains the AQAP surge: the whack-a-mole effect is in full swing.
Specific Stocks: Calgon Carbon (CCC) is the leader in manufacturing activated carbon, the stuff inside smokestack scrubbers for coal-fired power plants, big municipal water plant filters, and the little water filters in your household Brita system. In the last year CCC’s stock has only gone up about 12%, even though its earnings have been growing stoutly. It has a PE of 25% while its peer Koppers Holding (KOP) which makes specialty carbon products for steel and railroads has a PE of 32%. CCC’s earnings have grown 3 times faster than KOP’s. The market is afraid of coal fired power plants because of global warming fears and hence the discount. But here’s the kicker, as the leader in activated carbon, CCC has special products that work in cleaning up illegal Chinese coal power plants, of which there are hundreds. When the Chinese government finds an illegal power plant, it doesn’t shut it down, it orders a cleanup, an endless supply of business for CCC.
Geopolitics: Today was proof of how geopolitics can rock world markets. The final bailout package for Greece clicked into place and the market was poised to rally when a South Korean warship suffered an explosion in its hull and started sinking in a fishing zone that has often seen North and South Koreas' navies clash. The S. Korean Navy combed the area with radar. They got a reading and fired forward guns (shoot first ask questions later). The reading turned out to be a flock of birds. Several birds were vaporized. There was no sign of North Korean warships. As traders began to digest the implications of the S. Korean Navy not finding any bad guys, global markets started to recover hesitantly.
The Russian stock market popped up while all this was going on because Hillary’s nuclear arms reduction treaty was finalized. Russian ADRs soared 2% even though the price of oil was down today. There is something like an 80% correlation between Russian stocks and oil.
Meanwhile, the media is ignoring the real geopolitical news of the last few days. The Pak Army has been advancing on a Taliban stronghold in the tribal lands that border N. Waziristan. In three days it has killed about 90 bad guys. On Friday, the Pak Air Force killed 66 bad guys. Bad guys are getting chewed up by the Pak Army and this probably explains the AQAP surge: the whack-a-mole effect is in full swing.
Specific Stocks: Calgon Carbon (CCC) is the leader in manufacturing activated carbon, the stuff inside smokestack scrubbers for coal-fired power plants, big municipal water plant filters, and the little water filters in your household Brita system. In the last year CCC’s stock has only gone up about 12%, even though its earnings have been growing stoutly. It has a PE of 25% while its peer Koppers Holding (KOP) which makes specialty carbon products for steel and railroads has a PE of 32%. CCC’s earnings have grown 3 times faster than KOP’s. The market is afraid of coal fired power plants because of global warming fears and hence the discount. But here’s the kicker, as the leader in activated carbon, CCC has special products that work in cleaning up illegal Chinese coal power plants, of which there are hundreds. When the Chinese government finds an illegal power plant, it doesn’t shut it down, it orders a cleanup, an endless supply of business for CCC.
Thursday, March 25, 2010
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.
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.
Wednesday, March 24, 2010
CIA Still Extremely Pissed Off
Charts: The S&P 500 closed at 1168, down .6%. The index pushed below support at 1170, which is mildly bearish. FXI (index of Chinese blue chips) retreated sharply from its 200-day moving average, which is more than mildly bearish. All year we’ve seen emerging markets underperform. American leadership is good but the followers need to respond to the leader.
Fundamentals: Portugal’s debt was downgraded today. This caused the dollar to rock up. The strengthening dollar hurts emerging markets, the only true source of growth in the world economy. US housing data continues to weaken, which is causing US treasury yields to go up. Yield on the 10-year leaped by the greatest amount in 8 months. For the past three trading days the market has decided that Obama-Care won’t destroy the world economy for another couple years. Today the market is moving past Obama-Care and focusing on some of the other problems that have been with us for awhile, and getting worried again.
Geopolitics: CIA drones once again sent multiple salvos of Hellfire missiles into Taliban compounds and vehicles in North Waziristan. The ISI says that 6 bad guys were killed but once again their identity cannot be confirmed because the drones are more aggressive than usual and independent observers can’t get close to the killing zone. The CIA remains extremely pissed off. The group I have been calling the “North Waziristan Taliban” is actually called Hezb-e-Islami. These non-English names are impossible to remember or keep straight, so let’s stick with my terminology. A spokesman for the NW Taliban said today that his group is not actively negotiating with Karzai’s government. That is a lie of course, but it is evidence that the CIA’s tactic of literally blasting these peace talks apart is beginning to work.
Karzai is worried about his fate when American troops begin to be withdrawn from Afghanistan in about a year. America wants the Pak Army to essentially replace the US Army/USMC when this happens. This would make Karzai a figurehead at best. Right now the top generals of the Pak Army are in Washington DC negotiating a massive increase in military aid and weaponry. Karzai is having kittens.
Fundamentals: Portugal’s debt was downgraded today. This caused the dollar to rock up. The strengthening dollar hurts emerging markets, the only true source of growth in the world economy. US housing data continues to weaken, which is causing US treasury yields to go up. Yield on the 10-year leaped by the greatest amount in 8 months. For the past three trading days the market has decided that Obama-Care won’t destroy the world economy for another couple years. Today the market is moving past Obama-Care and focusing on some of the other problems that have been with us for awhile, and getting worried again.
Geopolitics: CIA drones once again sent multiple salvos of Hellfire missiles into Taliban compounds and vehicles in North Waziristan. The ISI says that 6 bad guys were killed but once again their identity cannot be confirmed because the drones are more aggressive than usual and independent observers can’t get close to the killing zone. The CIA remains extremely pissed off. The group I have been calling the “North Waziristan Taliban” is actually called Hezb-e-Islami. These non-English names are impossible to remember or keep straight, so let’s stick with my terminology. A spokesman for the NW Taliban said today that his group is not actively negotiating with Karzai’s government. That is a lie of course, but it is evidence that the CIA’s tactic of literally blasting these peace talks apart is beginning to work.
Karzai is worried about his fate when American troops begin to be withdrawn from Afghanistan in about a year. America wants the Pak Army to essentially replace the US Army/USMC when this happens. This would make Karzai a figurehead at best. Right now the top generals of the Pak Army are in Washington DC negotiating a massive increase in military aid and weaponry. Karzai is having kittens.
Tuesday, March 23, 2010
CIA Extremely Pissed At Karzai
Charts: the S&P 500 closed at 1174, up .7%. The index successfully tested support at 1154 twice since Friday. It bounced up against resistance at 1170 once, got knocked down, regrouped and popped through, bullish chart action. FXI is the blue chip index of China. Today it almost broke above its 200-day moving average. FXI’s chart action had been saying China was in a bear market. US leadership is fine, but in today’s global market it is technically significant for FXI to move above the 200-day line. Meanwhile, oil has been unable to breach resistance at $83 a barrel, good for China and America.
Fundamentals: Obama-Care front loads taxes and back loads benefits. It will probably lower the deficit for the next couple years and then massively raise it for the next few decades. Even the bond market doesn’t look years ahead and the stock market certainly doesn’t.
Every year the big iron ore miners and steel mills negotiate an annual ore contract. The talks are breaking down. Currently the spot price is about twice as high as the contract price because of Chinese demand. The biggest ore miner, VALE, is sensibly telling the big European mills that the contract price must double. The European mills are freaking out and trying to take legal action against VALE rather than hammer out a deal. The contract system is probably going to be destroyed and the price of ore is set to double. Steel represents 80%-90% of industrial metals, so the contract system collapsing is huge news and creates all sorts of losers and winners.
Geopolitics: Hillary made a speech in front of the most powerful Israeli lobby, blasting Israel with verbal bombs like this: “New construction in E. Jerusalem or the W. Bank undermines mutual trust and endangers… talks… that both sides want and need.” Slamming Israel in front of its lobby is incredibly bold. If Israel freezes settlement building, a Palestinian state will arise all by itself, even without peace talks. This would be a deadly blow to Al-Qaeda. It gets something like $500 million a year from wealthy Arabs who mostly give because of the Israeli/Palestinian conflict.
Israeli PM Netanyahu is in DC and firing back at Hillary, trying to play tough guy, big mistake. Defense Secretary Gates is talking about selling F35 Joint Strike Fighters to the United Arab Emirates. No Arab country has ever been offered a weapons system this advanced before. If Arab countries were allowed to buy the F35, Israel would be in big trouble.
On Sunday CIA drones killed 8 bad guys in N. Waziristan. Who was killed is not known because a drone wolf pack stayed in place and kept killing anybody that tried to help the wounded or even get close. The CIA does this only when it is extremely pissed off. The anger is probably due to ongoing Karzai/Taliban peace talks. Karzai better watch his step.
Fundamentals: Obama-Care front loads taxes and back loads benefits. It will probably lower the deficit for the next couple years and then massively raise it for the next few decades. Even the bond market doesn’t look years ahead and the stock market certainly doesn’t.
Every year the big iron ore miners and steel mills negotiate an annual ore contract. The talks are breaking down. Currently the spot price is about twice as high as the contract price because of Chinese demand. The biggest ore miner, VALE, is sensibly telling the big European mills that the contract price must double. The European mills are freaking out and trying to take legal action against VALE rather than hammer out a deal. The contract system is probably going to be destroyed and the price of ore is set to double. Steel represents 80%-90% of industrial metals, so the contract system collapsing is huge news and creates all sorts of losers and winners.
Geopolitics: Hillary made a speech in front of the most powerful Israeli lobby, blasting Israel with verbal bombs like this: “New construction in E. Jerusalem or the W. Bank undermines mutual trust and endangers… talks… that both sides want and need.” Slamming Israel in front of its lobby is incredibly bold. If Israel freezes settlement building, a Palestinian state will arise all by itself, even without peace talks. This would be a deadly blow to Al-Qaeda. It gets something like $500 million a year from wealthy Arabs who mostly give because of the Israeli/Palestinian conflict.
Israeli PM Netanyahu is in DC and firing back at Hillary, trying to play tough guy, big mistake. Defense Secretary Gates is talking about selling F35 Joint Strike Fighters to the United Arab Emirates. No Arab country has ever been offered a weapons system this advanced before. If Arab countries were allowed to buy the F35, Israel would be in big trouble.
On Sunday CIA drones killed 8 bad guys in N. Waziristan. Who was killed is not known because a drone wolf pack stayed in place and kept killing anybody that tried to help the wounded or even get close. The CIA does this only when it is extremely pissed off. The anger is probably due to ongoing Karzai/Taliban peace talks. Karzai better watch his step.
Sunday, March 21, 2010
Give Peace A Chance? CIA says: NO WAY!
Geopolitics: The UN was negotiating a peace deal with the Afghan Taliban when the CIA and ISI arrested the Taliban’s lead negotiator, #2 Chieftain Mullah Baradar, supposedly destroying the chance for a diplomatic end to the Long War. Darn. Along the same lines, last week CIA drones killed several leaders of the North Waziristan Taliban. The NW Taliban has been actively negotiating a peace treaty with Afghan President Karzai, probably a deal was close before the drones hit Taliban houses and cars with 3 separate salvos of Hellfire missiles. The peace deal literally went up in flames. A Pattern is clear, whenever one of the Talibans makes serious progress in crafting a peace treaty with one of America’s weak-kneed junior partners, the CIA arrests or kills the bad guy leaders trying to hammer out a peace treaty. In all probability the mere act of negotiating exposes the bad guy leaders to danger since the UN or Karzai’s government is easily infiltrated by the CIA and ISI. Going forward, UN diplomats or Karzai’s diplomats will probably also be in danger if they try to negotiate a peace deal with a Taliban chieftain because CIA Director Panetta has publically said he is willing to strike bad guys in urban areas at any time. And yet Gen. McChrystal says he is open to peace talks with the Taliban. This is just spin from McChrystal.
By destroying peace deals, the CIA is controlling public opinion in America. If American voters learned of a peace treaty between Karzai and the Taliban, they would demand US troops come home immediately. Of course any peace treaty wouldn’t be worth the paper it’s written on and US troops would have to return someday in bigger numbers. This is exactly what happened to Pakistan in the Swat Valley and elsewhere.
The Long War is not going well in the Caucus Mountains of Russia. The heart of the Caucus Islamic insurgency, Chechnya, is relatively stable but the rebellion is spreading outward. The hardest hit region is Dagestan. The number of police officers killed by bad guys in Dagestan doubled between 2008 and 2009. In a vicious cycle, the bad guys wreck the local economy and then enjoy a rush of recruits from jobless young men, which allows them to wreck the economy even more. This is one of the reasons why the Russian stock market has a very low P/E ratio.
By destroying peace deals, the CIA is controlling public opinion in America. If American voters learned of a peace treaty between Karzai and the Taliban, they would demand US troops come home immediately. Of course any peace treaty wouldn’t be worth the paper it’s written on and US troops would have to return someday in bigger numbers. This is exactly what happened to Pakistan in the Swat Valley and elsewhere.
The Long War is not going well in the Caucus Mountains of Russia. The heart of the Caucus Islamic insurgency, Chechnya, is relatively stable but the rebellion is spreading outward. The hardest hit region is Dagestan. The number of police officers killed by bad guys in Dagestan doubled between 2008 and 2009. In a vicious cycle, the bad guys wreck the local economy and then enjoy a rush of recruits from jobless young men, which allows them to wreck the economy even more. This is one of the reasons why the Russian stock market has a very low P/E ratio.
Friday, March 19, 2010
Osama bin Laden Please Help Us!!!
Charts: The S&P 500 closed at 1160, down .5%. Today was a tripling witching options expiration day, so volume data is less meaningful. The index tested its closest support level (1154) and bounced up off support. This is good technical action, especially considering the fundamental news was really bad, although geopolitics continues to be really good.
Fundamentals: India raised interest rates overnight. Inflation is heating up in emerging markets, thus the concern over rate hikes and slowing growth.
Greece is saying that it can’t sell any more debt unless the IMF and/or Germany cobble together a genuine support program. Germany has been trying to get away with jaw-boning Greek credit spreads down. Greece can sell debt but wants to do so at the lower rates that will come with an implicit guarantee. It is put up or shut up time for all the actors in the Greek drama.
Stocks levered to emerging market growth took big hits today.
Geopolitics: In a Washington Post interview CIA Director Panetta said Al-Qaeda was in such disarray that one of its lieutenants, in an intercepted message, pleaded with Osama bin Laden to come out of hiding and provide leadership. OBL and a handful of top leaders are apparently dug down very deep somewhere in Pakistan and are in pure survival mode. Panetta went on to say, “It’s pretty clear from all the intelligence we are getting that they are having a very difficult time putting together any kind of command and control; that they are scrambling. And that we really do have them on the run.” This speaks to a huge whack-a-mole effect at some point. To that end, the Director says the CIA is willing to strike in urban areas or anywhere. He goes on to explain that the CIA has been involved in the interrogation of #2 Taliban Commander Mullah Baradar somewhere in Pakistan and significant intelligence is being acquired. Obviously these interrogations are gloves off and the CIA is not being constrained by human rights organizations or the US Congress. That Panetta would openly admit as much speaks to the massive political insulation he has built between his agency and liberal lawmakers in DC.
Hillary was supposed to negotiate with Russian PM Medvedev (good guy) today over nuclear weapons but Russian Pres. Putin (bad guy) horned in on the action. Elbowing Medvedev out of the way, Putin told Hillary that Russia is going forward with plans to build a nuclear reactor in Iran. Putin’s action was part of a long running power struggle that he is having with Medvedev. America needs Medvedev to win before it can go forward with creating a US-Russia alliance, which would be cemented by a nuclear arms reduction treaty. If such a treaty were to materialize, then it would actually be great if Russia built reactors in Iran and controlled fissile material there.
Fundamentals: India raised interest rates overnight. Inflation is heating up in emerging markets, thus the concern over rate hikes and slowing growth.
Greece is saying that it can’t sell any more debt unless the IMF and/or Germany cobble together a genuine support program. Germany has been trying to get away with jaw-boning Greek credit spreads down. Greece can sell debt but wants to do so at the lower rates that will come with an implicit guarantee. It is put up or shut up time for all the actors in the Greek drama.
Stocks levered to emerging market growth took big hits today.
Geopolitics: In a Washington Post interview CIA Director Panetta said Al-Qaeda was in such disarray that one of its lieutenants, in an intercepted message, pleaded with Osama bin Laden to come out of hiding and provide leadership. OBL and a handful of top leaders are apparently dug down very deep somewhere in Pakistan and are in pure survival mode. Panetta went on to say, “It’s pretty clear from all the intelligence we are getting that they are having a very difficult time putting together any kind of command and control; that they are scrambling. And that we really do have them on the run.” This speaks to a huge whack-a-mole effect at some point. To that end, the Director says the CIA is willing to strike in urban areas or anywhere. He goes on to explain that the CIA has been involved in the interrogation of #2 Taliban Commander Mullah Baradar somewhere in Pakistan and significant intelligence is being acquired. Obviously these interrogations are gloves off and the CIA is not being constrained by human rights organizations or the US Congress. That Panetta would openly admit as much speaks to the massive political insulation he has built between his agency and liberal lawmakers in DC.
Hillary was supposed to negotiate with Russian PM Medvedev (good guy) today over nuclear weapons but Russian Pres. Putin (bad guy) horned in on the action. Elbowing Medvedev out of the way, Putin told Hillary that Russia is going forward with plans to build a nuclear reactor in Iran. Putin’s action was part of a long running power struggle that he is having with Medvedev. America needs Medvedev to win before it can go forward with creating a US-Russia alliance, which would be cemented by a nuclear arms reduction treaty. If such a treaty were to materialize, then it would actually be great if Russia built reactors in Iran and controlled fissile material there.
Thursday, March 18, 2010
Night Is The Kingdom of The Taliban
Charts: The S&P 500 closed at 1166, down a fraction. The market is digesting its torrid gains. Oil continued retreating from technical resistance after it hit $83 a barrel.
Fundamentals: Retail inflation came in tame today. Employment data was slightly soft but roughly inline. Obama-Care is gaining momentum but still up in the air (scary). European countries are trimming their deficits while the US Congress is busy shoveling pork with both hands. So there is a shift of sovereign debt away from virtually every country on Earth to America. These are the questions for the 21st century: Is buying US debt becoming a sort of global tax? Who pays for the bread and circuses of the United States of Rome?
Geopolitics: CIA drones last week killed a Yemeni linked Al-Qaeda leader who organized the December massacre of 7 CIA officers. The recent drone strike was in Pakistan and the Dec. massacre was in Afghanistan but it is interesting that the bad guy was linked to AQAP. Evidently Al-Qaeda must reach out to its outer provinces to find quality leadership. In a recent interview CIA Director Panetta said Afpak Al-Qaeda/Taliban leadership has been seriously degraded. As we’ve seen, there has probably been old-fashioned assassination alongside high tech drone attacks. The lack of bad guy leadership is evident in Marja. Taliban fighters are coming out at night and brutalizing the local citizenry with tactics that include beheading. One tribal elder told the New York Times, “After dark the city is like the kingdom of the Taliban.” In the long run such brutality will hurt the bad guys. In the short run it will slow down the advance on Kandahar because conquered territory is not yet pacified.
Hillary is off to Russia to hammer out the final details in a nuclear weapons reduction treaty. Pres. Obama is directly involved in the negotiations. When and if the treaty is finalized, US-Russian relations will take a big jump forward. India is already backing off from its recent craziness at the prospect of the Russian bear and American eagle making nice.
And Israel is also inching away from its anti-US craziness, allowing Palestinians more freedom of movement, backing away from its recent crackdown.
Fundamentals: Retail inflation came in tame today. Employment data was slightly soft but roughly inline. Obama-Care is gaining momentum but still up in the air (scary). European countries are trimming their deficits while the US Congress is busy shoveling pork with both hands. So there is a shift of sovereign debt away from virtually every country on Earth to America. These are the questions for the 21st century: Is buying US debt becoming a sort of global tax? Who pays for the bread and circuses of the United States of Rome?
Geopolitics: CIA drones last week killed a Yemeni linked Al-Qaeda leader who organized the December massacre of 7 CIA officers. The recent drone strike was in Pakistan and the Dec. massacre was in Afghanistan but it is interesting that the bad guy was linked to AQAP. Evidently Al-Qaeda must reach out to its outer provinces to find quality leadership. In a recent interview CIA Director Panetta said Afpak Al-Qaeda/Taliban leadership has been seriously degraded. As we’ve seen, there has probably been old-fashioned assassination alongside high tech drone attacks. The lack of bad guy leadership is evident in Marja. Taliban fighters are coming out at night and brutalizing the local citizenry with tactics that include beheading. One tribal elder told the New York Times, “After dark the city is like the kingdom of the Taliban.” In the long run such brutality will hurt the bad guys. In the short run it will slow down the advance on Kandahar because conquered territory is not yet pacified.
Hillary is off to Russia to hammer out the final details in a nuclear weapons reduction treaty. Pres. Obama is directly involved in the negotiations. When and if the treaty is finalized, US-Russian relations will take a big jump forward. India is already backing off from its recent craziness at the prospect of the Russian bear and American eagle making nice.
And Israel is also inching away from its anti-US craziness, allowing Palestinians more freedom of movement, backing away from its recent crackdown.
Wednesday, March 17, 2010
General Petraeus Hates Israel
Charts: The S&P 500 closed at 1166, up .6%. Resistance is at 1070. Oil hit $83 a barrel, encountered technical resistance and fell back slightly. Oil tends to trade in a very technical manner, so if it breaks above $83 it will probably keep going.
Fundamentals: Wholesale inflation came in cooler than expected. This validates the Fed’s ultra-low interest rate policy. If the Fed really can keep rates this low for another year, then lofty stock P/E ratios can be justified a while longer and earnings can play catch up to these lofty valuations. It all boils down to tame inflation for a long time. The greatest inflation threat on the horizon is soaring oil prices.
Geopolitics: Over the past few days CIA drones have killed perhaps two dozen bad guy leaders in repeated strikes against North Waziristan Taliban compounds. The NW Taliban is led by Hafiz Gul Bahadur, who has made various peace deals here and there, playing both ends against the middle, but remains one of the top bad guys in the world. The NW Taliban may be providing sanctuary for the upper echelon of Al-Qaeda, possibly Osama bin Laden. There has been speculation that Al-Qaeda leaders have moved into the slums of Karachi but the latest drone strikes suggest otherwise.
In January a team led by Gen. David Petraeus made a report to the Joint Chiefs castigating Israel and showing that it is causing major harm to the US in the Long War. Since Petraeus is the greatest military mind of our generation let’s take this as a given: Israel under its current leadership is a deadly enemy to the US. Right now there is bloody rioting in E. Jerusalem as Palestinian protestors are tangling with Israeli security forces. Pres. Obama has canceled a scheduled trip of US special envoy Mitchell to Tel Aviv, effectively scuttling peace talks, slapping Israel in the face, and aiding the Palestinians. Republicans in Congress are attacking the President because he is step by step dismantling the US/Israeli alliance. The Republicans are 100% brain dead on this issue and Obama is doing the right thing.
Fundamentals: Wholesale inflation came in cooler than expected. This validates the Fed’s ultra-low interest rate policy. If the Fed really can keep rates this low for another year, then lofty stock P/E ratios can be justified a while longer and earnings can play catch up to these lofty valuations. It all boils down to tame inflation for a long time. The greatest inflation threat on the horizon is soaring oil prices.
Geopolitics: Over the past few days CIA drones have killed perhaps two dozen bad guy leaders in repeated strikes against North Waziristan Taliban compounds. The NW Taliban is led by Hafiz Gul Bahadur, who has made various peace deals here and there, playing both ends against the middle, but remains one of the top bad guys in the world. The NW Taliban may be providing sanctuary for the upper echelon of Al-Qaeda, possibly Osama bin Laden. There has been speculation that Al-Qaeda leaders have moved into the slums of Karachi but the latest drone strikes suggest otherwise.
In January a team led by Gen. David Petraeus made a report to the Joint Chiefs castigating Israel and showing that it is causing major harm to the US in the Long War. Since Petraeus is the greatest military mind of our generation let’s take this as a given: Israel under its current leadership is a deadly enemy to the US. Right now there is bloody rioting in E. Jerusalem as Palestinian protestors are tangling with Israeli security forces. Pres. Obama has canceled a scheduled trip of US special envoy Mitchell to Tel Aviv, effectively scuttling peace talks, slapping Israel in the face, and aiding the Palestinians. Republicans in Congress are attacking the President because he is step by step dismantling the US/Israeli alliance. The Republicans are 100% brain dead on this issue and Obama is doing the right thing.
Tuesday, March 16, 2010
Old-fashioned CIA Assassination
Charts: The S&P 500 closed at 1159, up .8%. Over the past several trading days the index has been defeated by the 1150 resistance level 6 times. In moderate volume it broke through this barrier, signaling possible continuation in the current rally leg. Support is now 1154.
Fundamentals: Greek debt was given a thumbs-up by a rating agency, cooling fears of default. The Fed says interest rates will remain low for a long time. Also, the Fed says that while it still plans to stop buying mortgage backed securities in a few weeks if housing softened dramatically, then the buys would restart. That’s the good news. Rumors are swirling of another rate hike in China, the bad news.
Geopolitics: The Afghan Army killed 5 bad guys Monday without help from NATO. It killed 9 bad guys (including a Taliban commander) on Sunday with NATO back up. Over the weekend the Taliban tried to blow up a prison in Kandahar to release hundreds of imprisoned Taliban fighters but failed because Afghan Intelligence knew about the plot ahead of time. This paints a picture of Afghan forces making rapid progress. However, the Afghan Taliban is making and planting 22 IEDs every day, that’s 8000 a year. NATO and the Afghan Army are encircling Kandahar by taking over numerous small villages on the big city’s periphery. The Afghan government is sending 1500 extra police to Kandahar to help control the city as the noose tightens. The Battle of Kandahar is coming faster than expected.
In Yemen, the truce with the Houthi rebels is holding so the Yemeni Air Force has started a bombing campaign against Al-Qaeda positions. The Yemeni government says that AQAP is planning big terror strikes and its campaign is disrupting the bad guys.
The New York Times says that a former Defense Intelligence operative named Michael Furlong has been running an assassination ring in Afghanistan and funding it by siphoning money from an innocent-sounding US program to “study the tribal landscape.” Furlong has no provable CIA connections but the good guys doing his dirty work are former CIA officers and CIA-linked Delta Force soldiers. The CIA says it is positively shocked that a rogue clandestine operation has been running under its nose and it only assassinates bad guys with drones, never the old-fashioned way (yeah right). It is a sad commentary on the folks here at Dave’s Geopolitical Market Update, but we actually like rogue CIA operations and buy stocks when we hear about them.
Fundamentals: Greek debt was given a thumbs-up by a rating agency, cooling fears of default. The Fed says interest rates will remain low for a long time. Also, the Fed says that while it still plans to stop buying mortgage backed securities in a few weeks if housing softened dramatically, then the buys would restart. That’s the good news. Rumors are swirling of another rate hike in China, the bad news.
Geopolitics: The Afghan Army killed 5 bad guys Monday without help from NATO. It killed 9 bad guys (including a Taliban commander) on Sunday with NATO back up. Over the weekend the Taliban tried to blow up a prison in Kandahar to release hundreds of imprisoned Taliban fighters but failed because Afghan Intelligence knew about the plot ahead of time. This paints a picture of Afghan forces making rapid progress. However, the Afghan Taliban is making and planting 22 IEDs every day, that’s 8000 a year. NATO and the Afghan Army are encircling Kandahar by taking over numerous small villages on the big city’s periphery. The Afghan government is sending 1500 extra police to Kandahar to help control the city as the noose tightens. The Battle of Kandahar is coming faster than expected.
In Yemen, the truce with the Houthi rebels is holding so the Yemeni Air Force has started a bombing campaign against Al-Qaeda positions. The Yemeni government says that AQAP is planning big terror strikes and its campaign is disrupting the bad guys.
The New York Times says that a former Defense Intelligence operative named Michael Furlong has been running an assassination ring in Afghanistan and funding it by siphoning money from an innocent-sounding US program to “study the tribal landscape.” Furlong has no provable CIA connections but the good guys doing his dirty work are former CIA officers and CIA-linked Delta Force soldiers. The CIA says it is positively shocked that a rogue clandestine operation has been running under its nose and it only assassinates bad guys with drones, never the old-fashioned way (yeah right). It is a sad commentary on the folks here at Dave’s Geopolitical Market Update, but we actually like rogue CIA operations and buy stocks when we hear about them.
Sunday, March 14, 2010
Israel's Hand Grenade & Oceanic Pain For India
Charts: Large caps and mega-caps have been exhibiting stalling behavior, which is bearish. When the S&P 500 hits 1150 volume goes up and it churns futilely against resistance without breaking through. It would be much better if volume were to fall off as it bumps against resistance. The mega-cap Dow is showing an even worst stalling pattern, small caps not so much.
Geopolitics: Last week VP Joe Biden and Israeli PM Netanyahu were getting ready for a state dinner in Israel when both men learned that Israeli Interior Minister Eli Yishai had (from out of the blue) approved 1600 new settler housing units in E. Jerusalem. Netanyahu was as shocked as Biden and the unprecedented action by the notoriously ultra-hawkish Interior Minister amounted to a palace coup. Biden reacted poorly to this hand grenade by cravenly begging the Palestinians to not cancel the opening of peace talks. Biden should have stormed angrily out of Israel and threatened to cut off military aid. The next day Hillary salvaged the situation somewhat by using the strongest anti-Israeli language ever recorded by an American diplomat. The above incident supports my theory that the CIA has been stepping on Mossad over the last couple years. Palestinian/Israeli peace talks are sure to be scuttled, a victory for Israeli hardliners. On the other hand, Mossad and the other hardliners are playing a dangerous game and putting a lot of faith in pro-Israeli lobbyists in America.
Russia and India had their big powwow and the Russians left the meeting wondering if India had gone insane. India says it will buy $15 billion worth of Russian warplanes and 19 Russian nuclear reactors (worth maybe $60 billion). Then India proposed an anti-Taliban/anti-Pakistan/anti-American military alliance consisting of Uzbekistan, Tajikistan, Russia, and India. In panicky and hysterical tones India explained that America was about to realign the Taliban with Pakistan, pull all its troops out of Afghanistan, and turn the whole region over to Osama bin Laden (!). Russia wants to take as much money from India as possible but wants nothing to do with this bizarre idea of a new anti-American military alliance. A couple days after the Russian/Indian meeting Russia and America made big strides in perfecting the START anti-nuclear missile treaty, a move toward cementing the fledgling Russo-American alliance and probably Russia’s way of subtly sidelining India.
Like Israel, India is playing with fire and here’s why: The biggest single insurgency in the world is India’s huge Maoist separatist movement, which is gobbling up territory in the Asian giant’s interior. India’s Maoist guerilla movement is bigger than any one Islamic separatist movement, but it is mostly contained to India, and definitely not linked to the global Islamic revolution. Obama’s CIA is as ruthless as Eisenhower’s CIA of the 1950s. If the ruthless spooks from Langley were to turn Indian Maoist guerillas into good bad guys, it would create an ocean of pain for India.
Geopolitics: Last week VP Joe Biden and Israeli PM Netanyahu were getting ready for a state dinner in Israel when both men learned that Israeli Interior Minister Eli Yishai had (from out of the blue) approved 1600 new settler housing units in E. Jerusalem. Netanyahu was as shocked as Biden and the unprecedented action by the notoriously ultra-hawkish Interior Minister amounted to a palace coup. Biden reacted poorly to this hand grenade by cravenly begging the Palestinians to not cancel the opening of peace talks. Biden should have stormed angrily out of Israel and threatened to cut off military aid. The next day Hillary salvaged the situation somewhat by using the strongest anti-Israeli language ever recorded by an American diplomat. The above incident supports my theory that the CIA has been stepping on Mossad over the last couple years. Palestinian/Israeli peace talks are sure to be scuttled, a victory for Israeli hardliners. On the other hand, Mossad and the other hardliners are playing a dangerous game and putting a lot of faith in pro-Israeli lobbyists in America.
Russia and India had their big powwow and the Russians left the meeting wondering if India had gone insane. India says it will buy $15 billion worth of Russian warplanes and 19 Russian nuclear reactors (worth maybe $60 billion). Then India proposed an anti-Taliban/anti-Pakistan/anti-American military alliance consisting of Uzbekistan, Tajikistan, Russia, and India. In panicky and hysterical tones India explained that America was about to realign the Taliban with Pakistan, pull all its troops out of Afghanistan, and turn the whole region over to Osama bin Laden (!). Russia wants to take as much money from India as possible but wants nothing to do with this bizarre idea of a new anti-American military alliance. A couple days after the Russian/Indian meeting Russia and America made big strides in perfecting the START anti-nuclear missile treaty, a move toward cementing the fledgling Russo-American alliance and probably Russia’s way of subtly sidelining India.
Like Israel, India is playing with fire and here’s why: The biggest single insurgency in the world is India’s huge Maoist separatist movement, which is gobbling up territory in the Asian giant’s interior. India’s Maoist guerilla movement is bigger than any one Islamic separatist movement, but it is mostly contained to India, and definitely not linked to the global Islamic revolution. Obama’s CIA is as ruthless as Eisenhower’s CIA of the 1950s. If the ruthless spooks from Langley were to turn Indian Maoist guerillas into good bad guys, it would create an ocean of pain for India.
Friday, March 12, 2010
India Should Buy MIG Fighter
Charts: Today’s newsletter goes out before the bell, so let’s dive into geopolitics.
Geopolitics: The experts are convinced that Mullah Omar has moved out of Pakistan’s tribal lands and is now somewhere inside the city of Karachi, hidden among the teeming slums of 16 million people. Other Taliban and Al-Qaeda leaders are probably also hidden in the giant city, including Osama bin Laden. CIA drones have forced bad guy leaders to give up their de facto nation states on the Afpak border. But lower level Taliban leaders and fighters are still in the tribal lands and are still fighting. History shows that without the leavening hand of the top leaders the lower level bad guys will become increasingly brutal to the local populations, alienating local tribal leaders and making it easier to build good bad guy Islamic militias.
Hunting down bad guy leaders in Karachi and building g/b/g Islamic militias will require even greater cooperation between the CIA and the ISI/Pak Army. This means the US needs to step harder on India. Right now Russian leaders are meeting with Indian leaders, trying to sell them the next generation MIG fighter. As perverse as this may sound, it is better that India buy weapons from Russia than the US.
Along these lines, Afghan Pres. Karzai is refusing a Pak Army offer to train Afghan troops. Karzai does not want Pakistan dominating Afghanistan once US troops start withdrawing. Karzai is reaching out to India to prevent this. But the US wants Pakistan to dominate Afghanistan. At the same time, the US cannot step on Karzai. Sift through all this and one point stands out: if Russia and the US were de facto allies and India turned to Russia because of deteriorating Indo-American relations, it would be a good thing.
Geopolitics: The experts are convinced that Mullah Omar has moved out of Pakistan’s tribal lands and is now somewhere inside the city of Karachi, hidden among the teeming slums of 16 million people. Other Taliban and Al-Qaeda leaders are probably also hidden in the giant city, including Osama bin Laden. CIA drones have forced bad guy leaders to give up their de facto nation states on the Afpak border. But lower level Taliban leaders and fighters are still in the tribal lands and are still fighting. History shows that without the leavening hand of the top leaders the lower level bad guys will become increasingly brutal to the local populations, alienating local tribal leaders and making it easier to build good bad guy Islamic militias.
Hunting down bad guy leaders in Karachi and building g/b/g Islamic militias will require even greater cooperation between the CIA and the ISI/Pak Army. This means the US needs to step harder on India. Right now Russian leaders are meeting with Indian leaders, trying to sell them the next generation MIG fighter. As perverse as this may sound, it is better that India buy weapons from Russia than the US.
Along these lines, Afghan Pres. Karzai is refusing a Pak Army offer to train Afghan troops. Karzai does not want Pakistan dominating Afghanistan once US troops start withdrawing. Karzai is reaching out to India to prevent this. But the US wants Pakistan to dominate Afghanistan. At the same time, the US cannot step on Karzai. Sift through all this and one point stands out: if Russia and the US were de facto allies and India turned to Russia because of deteriorating Indo-American relations, it would be a good thing.
Thursday, March 11, 2010
Dali Lama Is a Bad Good Guy
Charts: The S&P 500 closed at 1150, up .4%. The broad index is exactly at a major resistance level.
Fundamentals: Consumer inflation data from China came in hotter than expected (scary). Chinese real estate prices are still soaring but the sales pace is slowing. So Chinese tightening measures are starting to bite. China is acting like the planet’s central bank, dictating the pace of global recovery and global inflation. This tightrope balancing act will probably work so long as oil prices don’t break above the technically significant level of $83 a barrel.
Sen. Leader Reid says reconciliation will be used to pass Obama-Care. So the Demos are growing for broke. If they try and fail it will be fantastic. If they succeed it will be very bad.
Geopolitics: America has 17 different intelligence agencies. The 17th agency (DNI) was created by Congress after 911 to stitch the other 16 together, a bad idea then and a worse idea now. A better idea would be to cut the CIA loose from bungling Congressional watchdog committees as well as DNI and then keep DNI busy by letting it screw with the 15 intelligence agencies that are not the CIA. This is exactly what Pres. Obama has done, proof he is brilliant in national defense.
The Dali Lama says he now supports China’s Islamic bad guys, the Uighurs, and hints that he will coordinate insurgent activities with them. The very first Gitmo detainees were Uighurs, very nasty folks indeed. The short guy in the orange robe is a genius at public relations in the West, but he is not a man of peace. Like many of today’s bad guys he is a Frankenstein-like creation of the CIA during the Cold War and his soldiers were used back then against Maoist China. So China will need help from the CIA.
Indonesian counterterrorist forces have killed the Islamic bad guy who masterminded the Bali bombings. All the recent progress we’ve seen against bad guys in SE Asia lately is starting to bolster Malaysia’s stock market (EWM). Malaysia is the most capitalistic Muslim nation and a leader in Islamic finance.
Specific Stocks: Nissan (NSANY) is the only Japanese auto maker with a brake override feature, which prevent the supposed surging problems plaguing Toyota. Nissan will benefit from Toyota’s woes and these woes will be long lasting. Nissan is introducing the only electric car in the US in a few months, it will do better than analysts forecast, and NSANY is cornering lithium ion battery supplies. Nissan is introducing a line of light commercial trucks that will do better than expected. The Japanese Central Bank says it is going to depreciate the Yen, which will help Japanese manufacturers. I like NSANY’s chart.
A.O. Smith (AOS) is the largest water heater maker in North America. It makes water heaters and electric motors in China (growing fast). Its stock is undervalued because the market thinks it is levered to residential housing. But most of its N. American revenue is levered to replacement water heaters, not new construction. The charts show AOS is starting to break out.
Fundamentals: Consumer inflation data from China came in hotter than expected (scary). Chinese real estate prices are still soaring but the sales pace is slowing. So Chinese tightening measures are starting to bite. China is acting like the planet’s central bank, dictating the pace of global recovery and global inflation. This tightrope balancing act will probably work so long as oil prices don’t break above the technically significant level of $83 a barrel.
Sen. Leader Reid says reconciliation will be used to pass Obama-Care. So the Demos are growing for broke. If they try and fail it will be fantastic. If they succeed it will be very bad.
Geopolitics: America has 17 different intelligence agencies. The 17th agency (DNI) was created by Congress after 911 to stitch the other 16 together, a bad idea then and a worse idea now. A better idea would be to cut the CIA loose from bungling Congressional watchdog committees as well as DNI and then keep DNI busy by letting it screw with the 15 intelligence agencies that are not the CIA. This is exactly what Pres. Obama has done, proof he is brilliant in national defense.
The Dali Lama says he now supports China’s Islamic bad guys, the Uighurs, and hints that he will coordinate insurgent activities with them. The very first Gitmo detainees were Uighurs, very nasty folks indeed. The short guy in the orange robe is a genius at public relations in the West, but he is not a man of peace. Like many of today’s bad guys he is a Frankenstein-like creation of the CIA during the Cold War and his soldiers were used back then against Maoist China. So China will need help from the CIA.
Indonesian counterterrorist forces have killed the Islamic bad guy who masterminded the Bali bombings. All the recent progress we’ve seen against bad guys in SE Asia lately is starting to bolster Malaysia’s stock market (EWM). Malaysia is the most capitalistic Muslim nation and a leader in Islamic finance.
Specific Stocks: Nissan (NSANY) is the only Japanese auto maker with a brake override feature, which prevent the supposed surging problems plaguing Toyota. Nissan will benefit from Toyota’s woes and these woes will be long lasting. Nissan is introducing the only electric car in the US in a few months, it will do better than analysts forecast, and NSANY is cornering lithium ion battery supplies. Nissan is introducing a line of light commercial trucks that will do better than expected. The Japanese Central Bank says it is going to depreciate the Yen, which will help Japanese manufacturers. I like NSANY’s chart.
A.O. Smith (AOS) is the largest water heater maker in North America. It makes water heaters and electric motors in China (growing fast). Its stock is undervalued because the market thinks it is levered to residential housing. But most of its N. American revenue is levered to replacement water heaters, not new construction. The charts show AOS is starting to break out.
Wednesday, March 10, 2010
Boeing Tanker Ready For Iranian Missiles
Charts: The S&P 500 closed at 1146, up .45%. The market bumped repeatedly against stiff resistance at 1150, was knocked down, but held its own, hovering angrily just under that level, which is the bull market high. Support is at 1125 and under that 1120 is significant support.
Fundamentals: Trade data out of China came in stronger than expected. The Chinese government has been hinting that it is going to let its currency appreciate to slow down growth and today’s data made that seem more likely. This originally hurt material stocks. Then the US government said its February deficit was a record $221 billion, which hurt the dollar and sent materials gyrating. US sales and inventory data was better than expected. All this led to a wild ride on Wall Street.
Geopolitics: There have been several reports of CIA surveillance drones flying over the Somali capital city Mogadishu. The Somali Army and AU have been sporadically fighting Al-Shabab for a few weeks, making probing attacks here and there, seemingly avoiding an all out push in order to gather better intelligence. On Wednesday fighting in the big city flared up with 8 dead and scores wounded. The only reliable news source out of Mogadishu is a radio/TV station. Al Shabab has started beheading the reporters from the station so info is hard to come by. This does speak to Al-Shabab not doing that well in the fighting.
In Afghanistan, the US Fifth Stryker Brigade is beginning to secure the roads leading to Kandahar. Gen. McChrystal says that the Kandahar campaign will be different from Marja. In Kandahar the good guys will slowly build a noose around the city and even more slowly tighten it. Just because McChrystal was honest when he gave details of his Marja battle plan to the Taliban doesn’t mean he is being honest now when he says the attack will be in late summer. It isn’t his job to be honest. His job is to deceive.
Specific Stocks: Boeing has designed a refueling air tanker that is loaded with electronic countermeasures. The competing Airbus/Northrop design isn’t even in the running. It carries more fuel but has weak countermeasures. A few years ago the Airbus design was deemed better but since then Iran has developed a much stronger arsenal of missiles so Boeing is the winner. Over the next few decades the contract will be worth $100 billion.
Fundamentals: Trade data out of China came in stronger than expected. The Chinese government has been hinting that it is going to let its currency appreciate to slow down growth and today’s data made that seem more likely. This originally hurt material stocks. Then the US government said its February deficit was a record $221 billion, which hurt the dollar and sent materials gyrating. US sales and inventory data was better than expected. All this led to a wild ride on Wall Street.
Geopolitics: There have been several reports of CIA surveillance drones flying over the Somali capital city Mogadishu. The Somali Army and AU have been sporadically fighting Al-Shabab for a few weeks, making probing attacks here and there, seemingly avoiding an all out push in order to gather better intelligence. On Wednesday fighting in the big city flared up with 8 dead and scores wounded. The only reliable news source out of Mogadishu is a radio/TV station. Al Shabab has started beheading the reporters from the station so info is hard to come by. This does speak to Al-Shabab not doing that well in the fighting.
In Afghanistan, the US Fifth Stryker Brigade is beginning to secure the roads leading to Kandahar. Gen. McChrystal says that the Kandahar campaign will be different from Marja. In Kandahar the good guys will slowly build a noose around the city and even more slowly tighten it. Just because McChrystal was honest when he gave details of his Marja battle plan to the Taliban doesn’t mean he is being honest now when he says the attack will be in late summer. It isn’t his job to be honest. His job is to deceive.
Specific Stocks: Boeing has designed a refueling air tanker that is loaded with electronic countermeasures. The competing Airbus/Northrop design isn’t even in the running. It carries more fuel but has weak countermeasures. A few years ago the Airbus design was deemed better but since then Iran has developed a much stronger arsenal of missiles so Boeing is the winner. Over the next few decades the contract will be worth $100 billion.
Tuesday, March 9, 2010
Whack-A-Mole!
Charts: The S&P 500 closed at 1140, up .17%. Volume patterns within this rally are okay but the total amount of volume has been freakishly low. The vast majority of investors are sitting on the sidelines, probably spooked by the chance that Obama-Care might pass and the reemergence of sovereign debt fears.
Fundamentals: Germany, Canada, and China are cutting government spending and all three will soon be running surpluses again. Big country spending cuts exert enormous pressure on small countries to follow suit. Of the Euro-zone peripheral countries Greece, Ireland, and Spain have slashed spending but rating agencies are saying Portugal hasn’t cut enough. So the sovereign debt crisis is now pivoting on Portugal. Obama-Care must fail before America can focus on freezing spending. Since America’s debt is so vast progress here would help everywhere.
Geopolitics: Russia’s KGB is now called the FSB; it killed 8 Islamic bad guy leaders and arrested 10 more a few days ago. The main leader of the Caucus Islamic separatist movement was killed. This is very good news. The FSB is hinting of new advanced technology, maybe a sign of CIA help.
Singapore’s spy agency warned of Islamic attacks on Southeast Asian shipping a couple weeks ago. Obviously acting on a Singaporean tip, Philippine Marines raided an Abu Sayyaf camp and demolished it, killing scores of bad guys. Russia and SE Asia are possible whack-a-mole destinations. The good guys in these areas are working to staunch a possible bad guy in-flow as the USMC advances across Afghanistan.
In Afghanistan, the Afghan Taliban attacked a smaller rival Taliban and has taken over a big chunk of its territory in northern Afghanistan, far away from Kandahar and Marja. This territory produces revenue for the bad guys in the form of religious taxes. The Afghan Taliban is getting ready for a short whack-a-mole move away from the coming onslaught against Kandahar.
In Nigeria, Muslim and Christian mobs battled each other, resulting in about 200 dead. This is not organized Long War fighting such as the Marines vs. the Taliban but something worse. Spontaneous fighting between Muslims and Christians in Africa taps into the deep historical roots of the LW, akin to the nearly century-long Sudanese Civil War. Africa is the ultimate destination for the bad guys once the Afghan war winds down and a truly gigantic whack-a-mole effect kicks in.
Specific Stocks: Korea Electric Power (KEP) is an integrated utility in S. Korea. It also leads a consortium of companies and builds nuclear power plants in emerging markets. Its power plant design cannot withstand the impact of a fully laden 747 power-diving into the reactor core. Western designed power plants are strong enough to withstand this sort of terror attack and consequently they are twice as expensive as KEP plants but not better in any other way. Emerging market countries don’t want to pay for all the extra steel and concrete to ward off an attack that is unlikely to ever occur. Here we have silly Western Long War phobia helping an Eastern company.
Fundamentals: Germany, Canada, and China are cutting government spending and all three will soon be running surpluses again. Big country spending cuts exert enormous pressure on small countries to follow suit. Of the Euro-zone peripheral countries Greece, Ireland, and Spain have slashed spending but rating agencies are saying Portugal hasn’t cut enough. So the sovereign debt crisis is now pivoting on Portugal. Obama-Care must fail before America can focus on freezing spending. Since America’s debt is so vast progress here would help everywhere.
Geopolitics: Russia’s KGB is now called the FSB; it killed 8 Islamic bad guy leaders and arrested 10 more a few days ago. The main leader of the Caucus Islamic separatist movement was killed. This is very good news. The FSB is hinting of new advanced technology, maybe a sign of CIA help.
Singapore’s spy agency warned of Islamic attacks on Southeast Asian shipping a couple weeks ago. Obviously acting on a Singaporean tip, Philippine Marines raided an Abu Sayyaf camp and demolished it, killing scores of bad guys. Russia and SE Asia are possible whack-a-mole destinations. The good guys in these areas are working to staunch a possible bad guy in-flow as the USMC advances across Afghanistan.
In Afghanistan, the Afghan Taliban attacked a smaller rival Taliban and has taken over a big chunk of its territory in northern Afghanistan, far away from Kandahar and Marja. This territory produces revenue for the bad guys in the form of religious taxes. The Afghan Taliban is getting ready for a short whack-a-mole move away from the coming onslaught against Kandahar.
In Nigeria, Muslim and Christian mobs battled each other, resulting in about 200 dead. This is not organized Long War fighting such as the Marines vs. the Taliban but something worse. Spontaneous fighting between Muslims and Christians in Africa taps into the deep historical roots of the LW, akin to the nearly century-long Sudanese Civil War. Africa is the ultimate destination for the bad guys once the Afghan war winds down and a truly gigantic whack-a-mole effect kicks in.
Specific Stocks: Korea Electric Power (KEP) is an integrated utility in S. Korea. It also leads a consortium of companies and builds nuclear power plants in emerging markets. Its power plant design cannot withstand the impact of a fully laden 747 power-diving into the reactor core. Western designed power plants are strong enough to withstand this sort of terror attack and consequently they are twice as expensive as KEP plants but not better in any other way. Emerging market countries don’t want to pay for all the extra steel and concrete to ward off an attack that is unlikely to ever occur. Here we have silly Western Long War phobia helping an Eastern company.
Sunday, March 7, 2010
United States Of Rome
Geopolitics: The rise of the American superpower and the rise of ancient Rome are an example of history repeating itself and comparing the two can help us become better investors.
Stretching back to the dawn of Western civilization the center of military power was the old world of North Africa and the Mideast. In 264 BC Rome defeated the strongest old world power (Carthage) and the world’s military center began shifting to the new world of Europe. Over the next 91 years Rome fought two more wars against Carthage. Once the third and final war was over Europe had become the world’s military center and Rome the world’s sole superpower. For the next 2135 years the world’s military power was concentrated in Europe. It became the old world. Of the 3 big wars that Rome fought against Carthage the biggest by far was the second, where Hannibal’s columns of armored war elephants came pouring into Europe. To this day Hannibal remains a mythic figure of terror and dread.
In 1918 America was instrumental in defeating the strongest old war power (Germany) and the world’s military center began shifting from the old world (Europe) to the new world (North America). Over the next 71 years America fought two more wars against the strongest old world powers (Germany and then Russia) and once the third and final war (the Cold War) was over the world’s military power became concentrated in the new world. And once again the world had a single superpower. The second of the 3 European wars was by far the biggest, where Hitler’s mechanized armored columns nearly conquered the world. Hitler remains a mythic figure of terror and dread.
Around the time that Carthage fell Rome began to conquer, one by one, almost every country in the known world. Rome built roads in the provinces that it conquered. These roads linked the markets of individual towns together and formed larger markets. The outer provinces were literally emerging markets. A socialist rot infected the core of the empire as Roman citizens demanded government supplied bread and circuses. But the dynamic emerging markets countered the rot in the core and the imperial economy flourished. At about the time of Christ, Rome stopped conquering other countries and there was world peace for two centuries. During this period of peace the countries not conquered by Rome became stronger and stronger while the socialist rot in the heart of the empire got worse and worse. Rome engaged in what we call Quantitative Easing (printing money out of thin air) by debasing its currency. When the barbarians began pouring into Rome its financial system was so screwed up it couldn’t afford to raise big enough armies and the empire collapsed in 476 AD after centuries of bloody conflict.
America is today where Rome was in 190 BC, when it conquered Syria and began its domination of the Western world’s small powers. It is no small coincidence that America’s recent conquest of Iraq is right next to Syria. What roads were to Rome, stock markets and free trade accords are to America. So the American global empire can flourish for centuries even with a socialist rot at its core as long as it keeps fighting and winning the Long War, plus stock markets and free trade accords follow in the wake of its military victories. So far this is happening. The Pentagon dismantled Iraq’s trade barriers and turned it into a free trade zone. If we were ancient Roman investors we would want to focus on emerging markets and so it is today.
Stretching back to the dawn of Western civilization the center of military power was the old world of North Africa and the Mideast. In 264 BC Rome defeated the strongest old world power (Carthage) and the world’s military center began shifting to the new world of Europe. Over the next 91 years Rome fought two more wars against Carthage. Once the third and final war was over Europe had become the world’s military center and Rome the world’s sole superpower. For the next 2135 years the world’s military power was concentrated in Europe. It became the old world. Of the 3 big wars that Rome fought against Carthage the biggest by far was the second, where Hannibal’s columns of armored war elephants came pouring into Europe. To this day Hannibal remains a mythic figure of terror and dread.
In 1918 America was instrumental in defeating the strongest old war power (Germany) and the world’s military center began shifting from the old world (Europe) to the new world (North America). Over the next 71 years America fought two more wars against the strongest old world powers (Germany and then Russia) and once the third and final war (the Cold War) was over the world’s military power became concentrated in the new world. And once again the world had a single superpower. The second of the 3 European wars was by far the biggest, where Hitler’s mechanized armored columns nearly conquered the world. Hitler remains a mythic figure of terror and dread.
Around the time that Carthage fell Rome began to conquer, one by one, almost every country in the known world. Rome built roads in the provinces that it conquered. These roads linked the markets of individual towns together and formed larger markets. The outer provinces were literally emerging markets. A socialist rot infected the core of the empire as Roman citizens demanded government supplied bread and circuses. But the dynamic emerging markets countered the rot in the core and the imperial economy flourished. At about the time of Christ, Rome stopped conquering other countries and there was world peace for two centuries. During this period of peace the countries not conquered by Rome became stronger and stronger while the socialist rot in the heart of the empire got worse and worse. Rome engaged in what we call Quantitative Easing (printing money out of thin air) by debasing its currency. When the barbarians began pouring into Rome its financial system was so screwed up it couldn’t afford to raise big enough armies and the empire collapsed in 476 AD after centuries of bloody conflict.
America is today where Rome was in 190 BC, when it conquered Syria and began its domination of the Western world’s small powers. It is no small coincidence that America’s recent conquest of Iraq is right next to Syria. What roads were to Rome, stock markets and free trade accords are to America. So the American global empire can flourish for centuries even with a socialist rot at its core as long as it keeps fighting and winning the Long War, plus stock markets and free trade accords follow in the wake of its military victories. So far this is happening. The Pentagon dismantled Iraq’s trade barriers and turned it into a free trade zone. If we were ancient Roman investors we would want to focus on emerging markets and so it is today.
Friday, March 5, 2010
How Do You Spell Armenia?
Charts: The S&P 500 closed at 1139, up 1.4%. The index is comfortably above the super important Fibonacci support level of 1120. Almost every technical indicator has turned positive. Only one is bearish: investor sentiment, which is signaling complacency. The shaky rally has morphed into a sturdy rally.
Fundamentals: Greece crushed its government unions, announced gigantic spending cuts, and successfully floated a much anticipated bond issue. Portugal is just beginning this process and off to a great start. A good domino effect is rippling through highly indebted Euro-zone peripheral countries.
The big US jobs report came in much better than expected today and the Fed reported that consumer credit increased last month. This is the reason for the rally.
The Premiere of China made a speech implying that instead of further monetary tightening the Asian colossus will curb real estate investment and leave the rest of the economy alone. Consumer inflation is tame in China but a real estate bubble is forming. China has been using a sledgehammer to swat a fly. Now it will use a flyswatter. Stocks highly levered to growth in China had been suffering lately but today came roaring back.
Geopolitics: Iraq’s national election is underway. We want the incumbent, Maliki, to lose and the challenger, Allawi, to win. Through debaathification Prime Minister Maliki has been persecuting the minority Sunnis, playing into Al-Qaeda in Iraq’s hands (AQI is Sunni, the Baath party was Sunni). The biggest mistake that Bush made in Iraq was the so called debaathification campaign where every member of Saddam Hussein’s Baath party was fired or worse. A secular minded Shiite, Maliki has continued this pigheaded campaign. Allawi is a Shiite as well but he will put a stop to the mindless persecution, destroying AQI’s major recruiting tool. Furthermore, Allawi has very old and strong ties to the CIA. When the US Army leaves Iraq the CIA must move in to fill the void. Allawi will make sure that happens.
General McChrystal is telling us that the Battle of Marja is a dress rehearsal for the much bigger Battle of Kandahar coming in late summer. He is creating an entirely new command structure just for the Battle of Kandahar, reconfiguring almost all his resources around this goal. If Kandahar will be that much bigger than Marja won’t it be the pivotal battle that decides the fate of the Afghan war? No, pivotal battles aren’t necessarily the biggest ones. The pivotal Battle of Stalingrad was smaller than the Battle of Berlin in WW II. Therefore Marja is everything. How is it going? Fighting has died down since Monday. NATO is busy clearing every land mine, IED, and booby trap in houses, streets, and fields over a 155 square mile area, a huge task; and the bad guys are probably playing possum out there. During the searches, the good guys are not confiscating or removing bags of dried poppy seeds or raw heroin. In a policy shift, NATO is now fighting a war, not acting like the DEA. Stupidly, there are DEA agents in Marja, but these bad good guys are being sidelined.
A Congressional committee passed a resolution condemning Turkey for its WW I massacre of Armenians, enraging every Turk on the planet. With all the trouble we’re having keeping Turkey as an ally this is incredibly stupid. Turkey recalled its US ambassador. But Hillary is doing a fantastic job soothing Turkish feelings, explaining how brain-dead Congressmen are and how the average American can’t even spell the word Armenia.
Fundamentals: Greece crushed its government unions, announced gigantic spending cuts, and successfully floated a much anticipated bond issue. Portugal is just beginning this process and off to a great start. A good domino effect is rippling through highly indebted Euro-zone peripheral countries.
The big US jobs report came in much better than expected today and the Fed reported that consumer credit increased last month. This is the reason for the rally.
The Premiere of China made a speech implying that instead of further monetary tightening the Asian colossus will curb real estate investment and leave the rest of the economy alone. Consumer inflation is tame in China but a real estate bubble is forming. China has been using a sledgehammer to swat a fly. Now it will use a flyswatter. Stocks highly levered to growth in China had been suffering lately but today came roaring back.
Geopolitics: Iraq’s national election is underway. We want the incumbent, Maliki, to lose and the challenger, Allawi, to win. Through debaathification Prime Minister Maliki has been persecuting the minority Sunnis, playing into Al-Qaeda in Iraq’s hands (AQI is Sunni, the Baath party was Sunni). The biggest mistake that Bush made in Iraq was the so called debaathification campaign where every member of Saddam Hussein’s Baath party was fired or worse. A secular minded Shiite, Maliki has continued this pigheaded campaign. Allawi is a Shiite as well but he will put a stop to the mindless persecution, destroying AQI’s major recruiting tool. Furthermore, Allawi has very old and strong ties to the CIA. When the US Army leaves Iraq the CIA must move in to fill the void. Allawi will make sure that happens.
General McChrystal is telling us that the Battle of Marja is a dress rehearsal for the much bigger Battle of Kandahar coming in late summer. He is creating an entirely new command structure just for the Battle of Kandahar, reconfiguring almost all his resources around this goal. If Kandahar will be that much bigger than Marja won’t it be the pivotal battle that decides the fate of the Afghan war? No, pivotal battles aren’t necessarily the biggest ones. The pivotal Battle of Stalingrad was smaller than the Battle of Berlin in WW II. Therefore Marja is everything. How is it going? Fighting has died down since Monday. NATO is busy clearing every land mine, IED, and booby trap in houses, streets, and fields over a 155 square mile area, a huge task; and the bad guys are probably playing possum out there. During the searches, the good guys are not confiscating or removing bags of dried poppy seeds or raw heroin. In a policy shift, NATO is now fighting a war, not acting like the DEA. Stupidly, there are DEA agents in Marja, but these bad good guys are being sidelined.
A Congressional committee passed a resolution condemning Turkey for its WW I massacre of Armenians, enraging every Turk on the planet. With all the trouble we’re having keeping Turkey as an ally this is incredibly stupid. Turkey recalled its US ambassador. But Hillary is doing a fantastic job soothing Turkish feelings, explaining how brain-dead Congressmen are and how the average American can’t even spell the word Armenia.
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