Specific Stocks

Charts: Correlation between individual stocks has plunged in the past couple months from 80% to 15%. For the first time in years it is a stock pickers market. Support for the S&P 500 is at 1308 and resistance is at 1320. We want the index to bounce between these levels and consolidate. If that happens, then it will remain a stock pickers market.

Wabtec (WAB): This company makes locomotives, brakes for rail cars, and about 100 other rail products. It makes a computerized safety system linked to GPS satellites that can make rail accidents virtually impossible. American law mandates that this system will become universal here. Other countries will probably do the same. Competition will emerge in time, but WAB holds the lead in automated rail safety for now. It competes with Caterpillar in rebuilding rail cars. Essentially WAB is the arms merchant to the rail industry.

Komatsu (KMTUY) and Caterpillar (CAT): These two make expensive mining and construction equipment. Their stuff costs more but last longer and doesn't break down. As mineral deposits become harder to access mining projects will get bigger and more expensive, shutting out small miners who tend to buy cheap gear. Komatsu is taking market share away from Caterpillar in China. KMTUY leads in robotic ore hauling trucks. This is the wave of the future. CAT, however has its own advantages with a superior dealer network and the ability to rebuild equipment.

Coach (COH): In a way Coach is similar to the two companies above. It makes women's hand bags that have heavier stitching and last longer than higher end stuff from Italy. Coach patiently took ten years to conquer the Japanese market, creating new styles that were specific to Japan. Now it is conquering China. It is moving into men's hand bags in Asia. In America there is a cultural prejudice about men carrying purses, not so in Asia.

Lincoln Electric (LECO): Obama says he wants to spend new money on infrastructure. At some point local, state or federal governments are going to have to address real infrastructure needs and stop all this nonsense about high speed rail, solar power, and magic unicorns that sprinkle moon dust on congested highways to clear traffic jams. Most American bridges were built using conventional welding techniques and welding rod material. They should have been built using high impact welds that can withstand constant pounding. This is why bridges are collapsing. Since this does not involve unicorns and moon dust, politicians don't like rewelding almost every bridge in America, but necessity will some day force this to happen. LECO has the lion's share of the gear and material needed to make this happen.

Lululemon (LULU): This company makes expensive yoga attire. I ask moderate income women in my yoga class how they can afford this pricey stuff. When they practice yoga at home old sweats are fine, but when they go to class they have to look awesome. Therefore, they sacrifice somewhere else to buy this stuff. And LULU clothes are very flattering. This is a Canadian company and in its native land LULU clothes are no longer just for yoga, but for everyday wear as well. It is now expanding into America and Australia, where the culture is the same as Canada, so they don't have to change their business model or culture. If it does as well in its new turf as it did in the great white north, then LULU will expand 10 fold.

Monsanto (MON): For a while the number one seed company in the world had trouble with its triple staxx concept, where it stuffed more genetically engineered material into seeds than its competitors. It could create more traits than anybody else but yields went down as the genome of the plants in question cried in protest over this gross manipulation. But recently we have learned that Doctor Frankenstein (MON) is building better monsters. It has a drought resistant corn seed that should sweep Africa by storm.

A French court just said certain laws against GMO seeds are illegal. MON says it won't sell these seeds in France even if it is now legal. I was impressed. Stick to the emerging world where nobody cares about Frankenfood.

Dupont (DD): This is MON's main competitor. It is moving away from the industrial chemical business and into ag products. Often when large cap companies transform themselves like this they steadily go up and for a long time.

Phillip Morris International (PM): When I was in Indonesia I researched PM and learned first hand that it is clobbering local cigarette makers. What if people stop smoking? PM has more research on anti-smoking technology than anybody. It will get the whole world (except the US) hooked on ciggies and then sell them the stuff that will cure their addiction. Brilliant.

Several Mice Are Roaring

Charts: As growth investors, what we want to see is apathy, where volatility is so low nobody cares about the stock market. When this happens correlation between stocks disappear and at long last we have a stock pickers market. The first hints of apathy are emerging.

Fundamentals: The European Central Bank is funneling billions into European banks, who in turn are buying Italian and Spanish debt. True central bank QE would have the ECB buying the bonds directly; in that case there is no limit to how many bonds it could buy. But European banks will soon hit a wall and the purchases will have to stop. Italy needs to be well on the path to free market reform when that happens or the global stock rally will reverse. So in future blogs we will follow Italy's restructuring progress, which is so far going better than I predicted. The thing to remember is that Italy is not a giant Greece. Italy has powerhouse multi-national exporters like Fiat and Gucci.

Long War: The USS Abraham Lincoln aircraft carrier battle group has been joined by small British and French flotillas. This armada is now in the Strait of Hormuz, facing down the Iranian Revolutionary Guard Navy. Right before the armada sailed into Hormuz China told Iran that if the bad guys were to close the strait, then the Great Dragon would consider this an assault on "many nations." So Iran is crossing swords with two superpowers. What has pushed China and America into such a bold stance?

The great powers are acting to preclude an Israeli attack on Iran. Israel is a mouse roaring.

CIA drone strikes have resumed at a normal pace (maybe one or two strikes a week). The peace talks between America and the Taliban are taking shape and drone strikes will be used as a negotiating tool. And we are told the most recent drone strike took out Al-Qaeda operatives, not Taliban; which seems to indicate that peace talk drone strikes are already happening. Another interesting aspect of these talks is crystallizing, Qatar is not so much acting as a host to these talks, but actually running them in all significant details. Karzai's government in Afghanistan is lobbying Qatar for a position at the talks. Qatar seems to be deciding who represents the Taliban. The US has agreed to release 5 Gitmo detainees as a goodwill gesture to the Taliban to get the talks started. The detainees are being delivered to Qatar and the tiny emirate will do with them as it wishes. Qatar is a mouse roaring.

Turkey is too big to be a mouse. Let's call it a large rat. As the government of Iraq tries to rebuild itself as a Shiite dictatorship aligned with Iran, Turkey is subtly threatening to invade Iraq and pressure Maliki's government in other ways. Turkey is a roaring rat.

Going Rogue Is So Good

Charts: The euro reached an all-time low against the New Zealand dollar. The euro is not down nearly as much against the US dollar. The New Zealand dollar is a carry trade destination and the US dollar is not. So there must be at least a bit of a euro carry trade going on. Maybe a full blown euro carry trade will evolve. This would be very good news (when and if it happens) and means we should pile into emerging market debt and stocks.

Long War: America's highest ranking military officer is now in Israel, trying to talk the Israelis into not attacking Iran. Enormous pressure is being brought to bear against the Jewish state. Promises are being made. There are discussions about establishing "red lines," i.e. certain Iranian actions will automatically trigger a US attack on the bad guys. This new policy would be simliar to the red lines concerning North Korea attacking South Korea or China attacking Taiwan. Israel has totally gone rogue and is pushing the superpower into a very aggressive stance. If Mossad and the CIA are going rogue together it is bullish for stocks.

Is CIA Director Petraeus the kind of guy who would go rogue? Consider the Iraqi surge, the offensive he masterminded that won the Iraq War a few years ago. The Joint Chief of Staff was 100% opposed to the surge at first because it involved arming, training, and leading Sunni tribes from Iraq's interior against Al-Qaeda. These tribes were fighting for Al-Qaeda right before the surge and needed to switch sides, a tall order. Nobody at the Pentagon except Petraeus thought the surge would work. President Bush and Petraeus created a parallel Joint Chief structure to implement this strategy, completely bypassing the establsihed chain of command. The brass hated Petraeus until he became a hero. So, yes, the CIA Director is a good candidate for going rogue because he already did it once.

Now consider the greatest example in American history of a general going rogue. This was when Air Force General Curtis LeMay started firing ICBM nuclear missiles over Russia at the height of the Cuban Missile Crisis. Months before the crisis erupted LeMay tricked President Kennedy into issuing a standing order stating LeMay could test fire Minutemen missiles at any time (LeMay foresaw the crisis, genius). On paper LeMay was not committing treason. But in reality he was telling the USSR that he would unleash America's nulcear arsenal against the communists whether Kennedy wanted him to or not. For a brief moment America became a dictatorship with an Air Force general in charge. This scared the holy crap out of Khrushchev. LeMay had 100% gone rogue. If he hadn't done this, then America would not have won the Cold War. Rogue is good.

By the way, the movie Dr. Strangelove was based on this incident. Rent it. Watch it.

Long War Gets Religion. Al-Qaeda Makes A Mistake

Long War: I was pretty shaken up at the realization that Israel is now openly fighting alongside America in the Long War. What a sea change. Since the early days after 9/11, the US has had a policy of keeping religion out of the global conflict. US Generals were fired for saying things like,"My God is bigger than Allah." Not only had Israel been kept out of the conflict but African Christian countries like Ethiopia have contributed less than they could have because a religious dimension, an Islam vs. Christianity/Judaism dimension, was thought to generate stronger recruitment for the bad guys.

But then a couple months ago we saw Christian Ethopia invade Somalia and bad guy recruitment is way down because the Ethopian Army (along with the Kenyan and African Union armies) are killing so many bad guys that working for an Al-Qaeda franchisee in Africa is no longer a nice job. Young men have been signing up to serve as fighters for Al-Shabab for the paycheck, not for religious reasons. So the CIA might as well use a powerful local army if it is available.

South Africa does not contribute soldiers to the AU Somali effort for the same reason, it is a militantly Christian nation and therefore underutilized. South African soldiers are the best of the best. Probably we will see them fighting in the LW in the years ahead, maybe sooner.

Do you remember my blog that stated America's approval rating in Muslim majority countries does not go up or down based on the superpower's military actions in the Mideast? Even invading a Muslim country doesn't change the approval rating. It stays at a negative 90% or in the high 80s no matter what.

And with all this in mind the recent dispatch directly by President Obama of a Special Forces unit into central Africa dedicated to wiping out the Lord's Resistance Army (LRA) makes sense. This must have been CIA Director Petraeus' idea. The LRA is the strongest and most evil radical Christian militia in Africa. Although not as big as Al-Shabab these Christian bad guys are even more terrifying. They will chop a little kid's head off for spitting on the sidewalk.

If all the bad Christian militias are eliminated in Africa, then good Christian militia can fight for the CIA. And it looks like we will need to ramp up this new crusade quickly. Boko Haram is another African Al-Qaeda franchisee (in Nigeria) and it is 100% devoted to killing Christians. The Nigerian Long War battlefield is a pure Christian vs Muslim environment. And Al-Qaeda opened this part of the war up only recently, wanting to go after African Christians for some reason (probably to disrupt Nigeran oil exports). Al-Qaeda then is at least partially responsible for the CIA's new policy of inserting religion into the war.

It may turn out to be a strategic mistake on Al-Qaeda's part to create new enemies like this.

Bad Analysis Becomes Good Analysis

Long War: I've given you all a raft of bad analysis concerning the brewing Iran crisis. Sorry. But now we have the good stuff on tap...

For the last two years there has been a two pronged covert campaign against Iran's nuclear weapons development program: 1) Assassination of top scientists. 2) Sabotage of Iranian centrifuges and other nuke devices by computer virus and perhaps other means.

We know that the CIA along with NSA and Britain's MI5 have been running the sabotage campaign because German industrial giant Siemens and other huge multi-national companies were involved in creating the Stuxnet virus. Siemens was essentially declaring war against Iran by joining this effort, putting its own employees at risk from Iranian retaliation, plus the Stuxnet virus infected Siemens industrial equipment outside of Iran. There is no way Siemens stuck its neck out like that at Israel's behest.

We also know that the two campaigns were coordinated very closely because one of the assassinations involved an Iranian scientist on the verge of putting a software patch over Stuxnet. He was killed right before the patch was complete.

So this makes you think the CIA was in charge of the whole enchilada. I thought this was also true because there were several obvious signs left behind by the early assassins that made you think Israel was running this part of the two-pronged campaign. It seemed too obvious, a red herring. But Israel is now saying openly (using the obscure language of diplomacy) that it has been behind these assassinations all along. The US, Britain, and Iran are essentially saying the same thing. Probably there is a hardened cadre of Iranian Jews inside the country working for Israel and the Iranian government does not know these people are Jewish.

Final nail in the coffin: Today Israeli and American intelligence officials gave a warning that Iran's puppet, Hezbollah, is sending bomb making expertise to bolster Thailand's Islamic insurgency. The fact that Iran is increasing its global terror footprint is interesting in and of itself but it also shows that the CIA and Mossad are now speaking with one voice. The charade that the CIA and Mossad are not joined at the hip has been shredded.

So the CIA has been authorizing all these assassinations by Mossad except for the most recent one, which is an example of Mossad going rogue against the Western alliance (that it is a part of) and not an example of the CIA going rogue as it did in the 50s and 80s. The American led alliance does not want war at this juncture, but Israel does. On a practical basis for you and me (retail investors), a rogue CIA is bullish. A rogue Mossad in unpredictable.

Meanwhile, on the Mideastern battlefield, America is funneling weapons and ordnance into the Gulf Arab militaries at a furious pace. America is loading the Gulf Arab allies for bear. On the water, Iranian speedboats are buzzing US warships, making practice runs at them. So I was probably wrong when I said Iran would sow the Strait of Hormuz with mines and not directly attack the 5th Fleet.

Saudi Arabia is saying it can put 2 million barrels a day of extra oil on the market when and if war explodes in the Gulf or if a total boycott of Iranian oil were to occur. This means OPEC no longer exists. So just the prelude to war has changed the economic structure of the world.

Worrisome: A while ago the US Navy ran an exercise designed to mimic a likely tactic of the Iranian Revolutionary Guard Navy. The bad guy tactic is to overwhelm big warships with hundreds of tiny speedboats loaded with proximity bombs as well as traditional weapons. True to form, this tactic would require the small speedboats to engage in suicide (how jihadist). Anyway, the exercise showed this tactic is pretty effective. Also, Iranian shore batteries are harder to hit than I previously thought and they occupy about one thousand miles of shoreline. When and if war erupts, it will be no walk in the park for the good guys.

Opinion polls within Iran show that support for Hezbollah is unpopular as is support for Syria. The Iranian public does not like Iranian force projection at the borders of Israel. However, the Iranian nuclear program is very popular with the Iranian public. They will fight to keep this program alive. And the now obvious involvement of Israel in an Islamic war is not good. After the war at sea and in the air is over there will be some sort of land war. President Obama has recently said America doesn't do conventional land wars any more. Yeah right.

America is tired of war. War is not tired of America.

CIA or Mossad?

Charts: The S&P 500 has been meeting fierce resistance at 1292, its October peak. Support is at 1285. At midday this Friday it has moved in and out of this support level about ten times. It needs to hold above support or we could see further technical damage.

Fundamentals: The S&P rating agency is set to announce downgrades on France, Austria, and maybe a few other EU countries after the bell today. Hopefully it does not also downgrade the European Financial Stability Fund (the bailout fund for Europe's weaklings). And there are rumors that Greece's second bail out package is falling apart. The big picture is that Europe needs to at least stabilize enough to have a lost decade like Japan, rather than a huge depression. A fledgling euro carry trade has emerged, just like the yen carry trade during the first two of Japan's lost decades. If the euro carry trade strengthens we will be okay. If not, we are screwed. Such a carry trade will weaken the euro. Up until recently a weak euro has been bad. It might now be good.

Long War: President Obama has a mechanism for communicating with Iranian dictator Ayatollah Khomeini. Obama is telling the Ayatollah that if the Strait of Hormuz is closed, then the US 5th Fleet will unleash everything it has on the Iranian regime. What does it have? Right now there are two aircraft carrier battle groups ready to go. Just one of these carrier air wings is much stronger than the entire Iranian Air Force. In the nearby Med there are USMC amphibious assault ships. The 5th Fleet also can take command and control of the substantial British naval assets in the region. All Gulf Arab navies and air forces will come under 5th Fleet control in the event of war. Gulf Arab military assets are designed to work with the American military like a hand and glove. The US Air Force has a huge land based presence in the Gulf, which will come under the flag of the 5th Fleet when and if hostilities begin.

What will happen if The 5th Fleet goes to war against Iran? Consider the Powell Doctrine, which was created to prevent another Vietnam War type outcome. The Powell Doctrine says America should never engage in a conventional war unless overwhelming forces are brought to bear and US public opinion firmly supports the use of this force in a decisive manner. The doctrine asserts that victory is assured if these criteria are met. American public opinion supports going to war against Iran in survey after survey. This is the only military action that the US public supports. And the force I just described is indeed overwhelming. So Iran would be annihilated.

Now think about the recent assassination of an Iranian nuclear scientist. This incident occurred at the most sensitive possible moment. The scientist killed, we now know, was in charge of procurement for the Iranian nuclear weapons program. This is the most important position in the program because Iran cannot acquire the materials and technologies for nuclear weapons from within its own borders. Coming when it did, the assassination seemed to be designed to enrage and goad Iran into taking action that would unleash the fury of the 5th Fleet against the jihadist regime. The bulk of the American military establishment and the Western alliance does not want to goad the bad guys into war. Yesterday the EU called off its sanctions on Iranian oil to cool the temperature and give Iran breathing space, working against whatever entity committed the assassination.

If Iran thought that entity was Israel's Mossad it wouldn't be super afraid, more pissed off. If it thought that entity was the CIA, then it would be terrified. Because the CIA has a long history in the 50s and 80s of going rogue and working against other parts of the US government to push the superpower into acting in a bellicose manner.

There has been a 100% correlation between an out-of-control, berserk, bellicose CIA and a bull market for US stocks. So it is important we answer the question in the title of this blog. Perhaps we should start with an easier question: Does Israel have the stones to push America toward a war?

I Am Sure It Is The CIA

Fundamentals: The European Central Bank says it is not using QE (printing money) to solve the Euro-crisis and it is only purchasing small amounts of Spanish and Italian debt. If it used QE to buy huge amounts of bad Euro debt, then the weak sisters in Europe would stop all free market restructuring and austerity programs and go back to sponging off Germany.

But the ECB is engaged in currency swaps with the central banks of America, Switzerland, Japan, and Canada. All these central banks are engaged in QE except Canada. They are printing their own currencies and buying Euros. So the ECB is effectively engaged in QE. And it using QE to flood European banks with super cheap loans. This creates the opportunity for the banks to open up a carry trade where they use low interest ECB loans to buy high yielding Italian and Spanish debt. Investors thought the European banks wouldn't have the nerve for such a risky carry trade. Today we learned they do have the nerve and this carry trade is in full swing. So the ECB is in a complicated Rube Goldberg sort of way using QE to buy Spanish and Italian debt. This is short term very good and long term very bad because reform efforts may now falter.

Meanwhile, in America, highly qualified unemployed workers have for quite some time had the ability to take unfilled low paying jobs. For the last four months they have been doing just that and we know this because low paying jobs are being filled but at the same time legions of unemployed workers are dropping out of the labor force. It is possible that once this low hanging fruit has been plucked the US labor market will falter again. Data that came out today indicate that this is indeed happening.

So the good news out of Europe and the bad news out of the US are warring with each other today for a wild ride.

Long War: The US 5th Fleet is moving one aircraft carrier battle group out of the Persian Gulf and moving two fresh battle groups in. This is an indication that it is preparing to deal with Iran's threat to close the Strait of Hormuz. As I've said before, Iran will lace the strait with mines, not attack the US Navy. I've researched the 5th Fleets operational doctrine for mine sweeping. It is more aggressive than I thought. Mine sweepers are very vulnerable to any sort of attack so the US Navy does not allow them to be attacked. Before the sweepers go into the strait, the 5th Fleet will take out all Iranian shore batteries and any Iranian surface ships or submarines that can possibly harm the mine sweepers.

The Navy will essentially go to war with Iran.

As the 5th Fleet prepares for war, the State Department is having a cow over the CIA's decision to assassinate an Iranian nuclear scientist at this delicate moment. It's almost as if the @#$% CIA wants America to go to war with Iran. Can you imagine an organization being so bellicose? Tsk. Tsk. Tsk. These assassinations have been going on for two years but for the first time ever America's diplomatic corp is saying (untruthfully) that the US has nothing to do with them.

How do we know it is the CIA, not Mossad? All the assassinations have been done in the same manner and are therefore done by the same organization. For various reason it can only be Mossad or the CIA. Two years ago one of the first assassin's body was recovered and a tattoo was found on his arm that had verses from an ancient Hebrew text that involved the ancient Persian Empire. So somebody then was trying to say the assassin was from Mossad. For this and other reasons I am sure it is the CIA.

All CIA Channel

All CIA Channel: CIA drones attacked and killed three low ranking militants in the Pak tribal region. With all the intel the CIA has gathered recently it could surely have attacked a higher ranking target. The drone moratorium has been getting a lot of press recently and this is the CIA's way of saying there is actually no moratorium. There is a moratorium but this little flea bite of a drone strike is taking Agency actions out of the glare of headlines. The press has been saying the moratorium is designed to increase America's approval ratings in the Muslim world. This is not true. Opinion polls conducted in Muslim majority countries show that drone strikes don't help or hurt America's image. Most Muslim countries have about a 90% disapproval rating of the USA and this number stays constant no matter what the superpower does. It doesn't even make any difference if a Muslim country is invaded with American troops, the approval rating will stay the same.

No, this is all about the coming peace talks. Step back in time and remember when the US was conducting peace talks with North Vietnam, the B52 bombing campaign was ratcheted up and down according to how well the talks were going. If the talks were going poorly, then the tempo of bombing increased. When the talks went well, fewer bombs were dropped. The drone strikes in Pakistan today are like the bombing campaign in Vietnam and Cambodia. Contrary to what you might think, Kissinger's peace treaty with North Vietnam was a good one, it would have held if the US had simply maintained its support of South Vietnam after 1972, just as the armistice with North Korea has held up over the decades because the US has kept supporting South Korea.

Finally, the CIA has killed another Iranian nuclear scientist. We can assume that he was a key member of the bad guys nuclear weapons development program. It must be demoralizing when a scientist makes a breakthrough and is then quickly killed. Imagine a classroom where the students who get good grades are killed. What an incentive to leave early and goof off.

Taliban Peace Talks

Long War: Everyone concerned is furiously preparing for the coming peace talks with the Taliban. The host country, Qatar, has made the sale of pork and alcohol illegal in much of the country. This is an important gesture to the bad guys, making them feel important and welcome. Qatar has also made office space and other accommodations available to the evil ones. Supposedly the Taliban is happy with their new offices.

For the past two months or so the CIA has halted all drone strikes in the Pak tribal lands. This is much more than a small gesture. Because of the cessation of drone strikes, NATO has seen a big uptick in good guy combat deaths and the bad guys have made huge inroads in other ways. The Pak government has been forced to forge mini-peace deals with several of the smaller Talibans to keep from being overrun in the tribal lands.

One is tempted to think the CIA has lost its mind with this grand gesture. How could the peace talks be that important to give away such an advantage to the enemy? It is a good question and I will try to come up with an answer but a few other things are occurring beneath the surface that makes the CIA look less than crazy. For one, CIA surveillance drone flights are way up. Under these watchful eyes the rats are all leaving their holes in the Pak tribal lands, scurrying about to perform their evil deeds. Taliban spokesmen have been quite chatty lately, talking about how wonderful it is to have the freedom of movement that comes from zero drone strikes. No doubt the CIA is recording all this activity, gathering intelligence for the day when drone strikes resume. For another, the ISI and the Pak Army are experiencing the horror of zero CIA drone strikes. My guess is that the big upsurge in goodwill they thought was coming from the Pak public is failing to materialize and their own existence is threatened much more than they anticipated.

And there are other preparations being made for the peace talks. Team Obama is releasing at least five of the most dangerous inmates at Gitmo. We have the name of only one of these bad guys and we know that he is a specialist in sectarian violence, Sunnis killing Shiites. Al Qaeda has recently stepped up its campaign of sectarian violence but the Afghan Taliban has not been happy with this move.

So the peace talks may be designed to split the Taliban away from Al-Qaeda. In fact this is openly stated by the good guys prior to the talks.

But I ask long term readers to recall my blogs from a couple years ago when I was talking about the CIA's campaign to kill participants in the first fumbling attempts at peace talks. It does seem a stretch that today the CIA would perform a 180 and abort its most important mission in the Af/Pak theater (drone strikes) just to facilitate these nebulous peace talks. Now I ask you to imagine what the Taliban will say to America's demands during these talks. American demands will include renouncing terrorism, supporting women's rights, etc... Of course the Taliban will say, "Pound sand." The talks will fail. And then a mighty swarm of drones will darken the sky over the tribal lands and a fusillade of Hellfire missiles will light up the evening sky.

Are We Winning The Long War?

Long War: Pres. Obama and Def. Sec. Panetta gave speeches yesterday explaining what they will do with the Pentagon's budget and overall LW strategy in the years ahead. Since Obama will almost certainly win the next election this is a pretty big deal and it begs the question: Are we winning the LW?

Obama says he will slash troop levels and expand the Reserve. The Navy and Air Force will be held steady but the Army and USMC will shrink drastically. Special Forces will be expanded. Weapons systems that can defeat China will be maintained but if there is a big war with China, the US will have to ramp up to win. Either that or resort to nuclear weapons right away. He can't talk about the CIA in public but just look what he's done... Panetta is a former CIA Director and the current director, Petraeus, is the greatest military mind in 70 years. As I've said so many times, the LW is being handed over to the CIA.

Let's take a detour and talk briefly about Tajikistan (trust me its relevant). To escape the Af/Pak war the bad guys there have to go through Tajikistan to hook up with the bad guys in the Caucus mountains of Russia. Tajikistan has the most savage anti-jihadist laws and policies of any country in the world. Radical Islam is brutally crushed there in a hundred different ways and in a manner that speaks of heavy CIA involvement. This bottles up the bad guys in Af/Pak. Changing the nature of the Tajik government from the inside out is something the US Army simply cannot do, no matter how much money we might throw into tanks, men, and guns. So Obama's strategy is correct, assuming there is no war with China.

Okay, here is how we know if we are winning the LW or not... Global reserve currencies held by the planet's central banks are currently 62% US dollars, slightly above historical average. For decades the dollar has gone up in value and increased its reserve currency status whenever the geopolitical temperature goes up. Except one time, when Obama said that America will "lead from behind" in the Libyan War. But shortly after he said that media accounts exploded of Special Forces soldiers with phony British accents leading the Libyan rebels and taking the wood to Gaddafi. The dollar returned to its former role as investors figured out what lead from behind actually meant.

The highest reserve currency percentage level ever attained by the dollar was 73% shortly after 9/11. It went down as the US faltered in Iraq and then back up as the US prevailed. The percentage has gone up every year of the Obama presidency. Look, we could try to add up the daily number of bad guys killed vs good guys killed in the LW, graph this info and scratch our heads at the trends to decide if we are winning or not. But a better report card is the role played by the US dollar. And the report card is saying America is getting a solid B- in the Long War. Now I know a lot of you got straight A's in school, but any normal person will tell you a B- is pretty good.

Straits of Hormuz

Charts: Because of bad news from the Euro-crisis, in early going, the S&P 500 crashed down through the 1270 breakout level we talked about yesterday. The index crossed above and below 1270 six times in a hard fought battle for support throughout the morning. At midday support finally held and this technically driven market crawled fitfully up for a modest gain. So the nascent bull market is still intact.

Volatility has come down sharply, which is bullish. The spot VIX measures implied or expected volatility for the next 30 days, this is what traders simply call the VIX. For you and me (long only stock investors, not options traders) it is a forecasting tool and it is once again becoming useful. The spot VIX has over the past couple months screeched downward, again this is good. The February VIX is elevated, this is bad. The VIX's for the next few months ahead are all higher because of the vast amount of Euro debt that needs to be rolled over in Q1. These coming debt auctions will give us all a stomach churning white knuckle ride.

Volatility has come down but it is still very high. I look at my own portfolio today and reach for the Maalox bottle. Railroad supplier Koppers Holding (KOP) is down 2%. My other railroad supplier Wabtec (WAB) is up 2%. There is no news to explain the divergence, just nerves. We are all very scared. Where's my Maalox?

Fundamentals: American employment is strengthening because the extended unemployment benefits are set to expire in 2 months. There are 3.4 million unfilled jobs openings right now in America. They remain unfilled because of these benefits. When the benefits go away, unemployment will plunge. Obama wants to extend the bennys another year. This would be incredibly toxic to the now strengthening recovery. From a political perspective, Obama is running circles around the Republicans. He is eating their lunch. His competence is a danger to the stock market.

The Pentagon's Long War: Iran used to be able to rattle its saber and oil prices would go up. This would obviously help Iran. Now Iran rattles its saber and world oil prices go up, but the price Iran gets for its oil goes down. It is giving oil away to Greece for free, getting nothing more than IOUs. China is demanding lower and lower prices from Iran as sanctions bite deeper and deeper.

Iran is more desperate than most military experts think. Iran is saying it will close the Straits of Hormuz if the US 5th Fleet sends one of its two aircraft carrier battle groups into the Strait. Also, Iran is saying if there are any more sanctions, then it will close the Strait. Since it made that threat there have been more sanctions.

Military experts calculate the strength of the Iranian Navy compared to the 5th Fleet and say it would be suicide for the bad guys to attack the good guys. Furthermore, if there were such an attack the US would take out Iran's nuclear program and the rest of the world wouldn't bat an eye. All of this is true.

But Iran can do other things besides a frontal attack on the 5th Fleet. Namely, it can sow the Strait with mines. If a few oil tankers were to run into Iranian mines and blow up there is a good chance that the 5th Fleet would do nothing more than dispatch mine sweepers. This would lead to a slow motion ratcheting up of the conflict, not a decisive blow against Iran. This would be very bad. We all forget that the US Navy fought a mini-war with Iran's Navy over the course of three months in the late 80s. That war started because of mines and it was just the low key affair I am describing.

CIA Titan

Charts: On the last day of 2011 the S&P 500 was a whisker below its 200-day moving average, indicating that it was still in a bear market. In the last few months of 2011 it was displaying a coiling pattern, where volatility comes down and the spread between highs and lows tighten. The Nasdaq and the all-world index over that time period were both forming a clear wedge pattern. Both wedge and coiling indicate a market that is going to break either up or down when the pattern is complete. The direction of the break should have long term implications because the sharp end of the wedge centered on the 200-day moving average.

With the new year the market broke above the 200-day line of 1260 with the breakout conformation number at 1270. Today the index tested 1270 and found support. The breakout was in good volume compared to recent downdrafts. The charts then are saying we are in a new bull market. Charts can always be wrong but that's what they are saying.

Fundamentals: In Q1 2012 Euro-zone banks and governments have to roll over $700 billion in debt. Rating agencies may downgrade Euro debt and make a successful roll over impossible. China and America are getting stronger but the Euro-zone could tear us all down. Consider this one factoid: Italy has cut subsidies to loss-making Communist newspapers by only 50%. Italy is not serious about deficit reduction if it is still floating debt to subsidize Communist newspapers. So Europe is screwed. But the rest of the world can soldier on. This is the tug-of-war for 2012: Sick Europe vs. a relatively healthy world.

All CIA Channel: The #1 chieftain of the Pak Taliban is in open warfare with the #2 chieftain. The top bad guy thinks his underling is taking money from India, this is the source of the warfare. Al Qaeda and the Afghan Taliban are trying to hold their fragile axis of evil together by holding jurgas or meetings. This is a towering achievement for the CIA.

In Somalia, the African Union Army, the Kenyan Army, and the Ethiopian Army are tearing territory away from Al-Shabab. If the Somali war is successfully concluded, then the good guys will have a launch pad for attacking Al-Qaeda in Yemen. Using African armies to fight the Long War in this part of the world is the only way to go.

Bloodhound Tries To Sniffs CIA Trail

The CIA: Each paragraph represents a geopolitical event that bears CIA fingerprints.

As America has pulled troops out of Iraq, Iraqi oil production has soared. Oil contracts are very clean and well enforced. Clean contracts in the second most corrupt country in the world. Two weeks ago Al-Qaeda hit two pipelines in the south. The pipelines were fixed in record time. Oil exports were not affected. The Iraqi oil industry is a machine. It is almost up to 3 million barrels a day. this is much higher than under Saddam Hussein. As long as oil flows out of Iraq at ever increasing amounts the overall situation there is a net plus for the good guys in the Long War. For instance, if democracy were to fail in Iraq but oil exports actually accelerated, we win.

Libyan oil production is coming back ten times faster than experts predicted.

Hundreds of experienced Libyan fighters are joining the Free Syria Army. The FSA is based in Turkey and growing into a formidable military force. It is winning battles against the Syrian Army and holding ground. The territory it controls is small, just a few slivers of Syrian land, but that how it all starts. Every day we get causality numbers from the Syrian Civil War. These numbers seemed highly massaged. Mostly we just hear about civilian casualties at the hands of the Syrian Army. We aren't hearing about the hundreds of Syrian soldiers that have been killed so far by the good guys. Assad is in big trouble. If Assad is overthrown by the CIA, then Iran is toast.

The Air Force is complaining loudly that its pilots flying CIA drones are overworked. There is a mad scramble to find more drone pilots from the ranks of experienced older American fighter pilots. This means that 100 drones are aloft over the Long War battlefields at any one moment in time. They are probably making kills that we aren't hearing about in the mainstream media. This is probably why Al-Qaeda has taken up a new strategy of sowing sectarian tension between Sunni and Shiite. This is a desperate strategy: opening up a new war to win an existing one, two wars at once where before there had been only one.

The Muslim Brotherhood has so far sided with the Egyptian military, not the evil Salafist politicians as Egypt's election grinds forward. This is a volatile situation that is far from over, but so far so good. In a month or so the Salafist will take whatever seats they win in the new Egyptian parliament. The drafting of the new constitution will be the most significant Long War event in the coming year.

Let's Talk Turkey

Long War: Assad's Syrian Army (bad guys) lost about 40 soldiers this week to the rebel FSA (good guys), this was highest number of losses yet in the Syrian Civil War for the bad guys. The rebels initiated four separate battles over the week, knocking Assad's army back hard each time with coordinated rocket propelled grenade attacks. There are now Syrian towns where Assad's soldiers cannot go. It seems the rebels are starting to hold and control territory. The Syrian rebels are proving that they might be able to beat Assad if NATO were to create a No-Fly Zone over the desert country. France floated a trial balloon for a NFZ when it spoke of opening a humanitarian corridor to besieged civilians through military force.
Of course Turkey is a NATO member and might be talking to France through back channels. Either way it is becoming increasingly clear that Turkey is not only allowing the rebels to build camps and training facilities on Turkish territory, the Turks are also supplying, training, and in fact leading the FSA.
The evidence for this is the sudden flow of cash to the rebels, flow of weapons, and the overall success they are enjoying - a level of success that speaks to outside help. Another piece of evidence is that Turkey is tightening the noose on Syria through trade sanctions that go beyond Turkish companies. Turkey was able to crush a trade deal between India and Syria two days ago.
For the sake of argument let's suppose that in a year or two Assad's government is overthrown just as Gaddafi was overthrown. This eventuality would almost guarantee that a larger war with Iran would be inevitable. And that war would be spearheaded by Turkey with the US playing a supporting role, as it did in Libya.
The most important aspect of Turkey's vision of Islamic government and society in the 21st century is that the former leader of the Ottoman Empire is a ferociously free market entity. Turkey's economy is growing as fast or faster than any other country on Earth.

Turkey Steps Up

Charts: The S&P 500's 200-day moving average is between 1264-1267. The 50-day is 1224. The index is currently below both moving averages and since the 50-day is below the 200-day the index is still experiencing a death cross. An honest look at the charts indicates that we are in a bear market. So we have a new set of Fibonacci retracement levels. 1210-1212 is the new 50% retracement. So far today the index is finding support at this level, which is obviously good. Volatility is still increasing. To reach the all time high set on January 9 2009 volatility will have to increase by about 30%. After the all time peak in early 2009 volatility (as measured by EV) fell from 194% to 20%. Never in the history of the stock market has there been a lengthy bull run with volatility this high. It probably needs to go higher, but then it needs to dramatically collapse. If it stabilizes at a relatively high level we will have a few more years of bear market.

Fundamentals: The Greek economy is contracting at 5.6% (annualized) rate. The Irish economy is expanding at 1.5%. The two were the first Euro-periphery countries to get into trouble and have since then put austerity budgets in place. The Irish government also launched huge free market reforms and enjoys the broad support of voters. Greece has not put free market reforms in place and its people don't support anything the government is doing. Italy is traveling the same path as Greece, not Ireland. Meanwhile, financial markets want only one thing: ECB quantitative easing, where the European Central Bank prints money out of thin air and buys billions of dollars (euros) worth of Italian debt. If this happens without Italy taking the path of Ireland, then the long term outlook will be very dark. So the markets are wrong (long term). At this point an investor should probably not fight the markets and buy stocks whenever the ECB says QE is off the table on the belief that this is long term a good thing. If the ECB does engage in QE the results will be unpredictable in the medium term, in the short term it will be bullish. It is hard to define short term.

Long War: Obama's decision to pull all US troops out of Iraq continues to rock the world of the Long War. The threat of Israel launching an air strike against Iran has the Iranian navy practicing maneuvers to close the Strait of Hormuz and the US Navy is getting ready to counter these maneuvers; this is supporting the price of oil. With its US patron leaving Iraq unprotected, the Iraqi government is reaching out to Iran, forging the beginning of an unholy new alliance. To impress Iran, Iraq is doing what it can to help Syria, Iran's puppet. The power vacuum left by Obama's troop withdrawal is causing Turkey to step up and fill the role played by America. Turkey is hinting that it will invade Syria and/or step up its support of the Free Syrian Army. Turkey is also slapping Iraq verbally but we don't know what exactly Turkey is saying to the Iraqi government. The Iraqi Prime Minister is saying that Turkey represents the greatest threat his country faces, so whatever Turkey is saying must be pretty good. The Turkish military is the second strongest in NATO after the US. Turkey is a regional superpower and Iran's worst nightmare.

Meanwhile, Al-Qaeda is launching a new strategy: terror strikes that fan the Sunni-Shiite conflict that is always present in the Muslim world. Sunni suicide bombers are for the first time hitting Shiite targets in Afghanistan. In Iraq there have always been Sunni terror strikes against Shiites but the pace has stepped up dramatically in recent weeks. The nascent civil war in Syria is a Sunni/Shiite sectarian conflict. The good guys in Syria are Sunni. Al-Qaeda is Sunni. Al-Qaeda very much needs to gain a foothold in the Syrian war and take control of the good guys and then convert them to bad guy Sunni fanatics. Only Turkey and the CIA can prevent this.

Amazingly, Mullah Omar's Taliban is against Al-Qaeda sectarian attacks in Afghanistan. It is hard to understand exactly what this means.

We Give You All CIA All the Time

Charts: Today the S&P 500 advanced, hit its 200-day moving average, found resistance, and retreated in higher volume. In the last few weeks it has touched the 200-day line dozens of times and found resistance. The 200-day line is a technical battlefield. A victory or defeat after a hard fought battle like this magnifies the importance of either the victory or the defeat.

Last week's gigantic rally has not yet seen a follow through day. The current rally is therefore not a technical rally but it is a de facto rally. Probably the follow through day will come when and if the 200-day line is conquered. If resistance holds at the 200-day line, then a sharp downdraft is possible since we would never have had our follow through day.

Fundamentals: There have been 15 Euro-zone summit meetings so far over the past 2 years, all promising to solve the Euro-debt crisis. Every summit has seen a global stock rally beforehand. And every summit has seen a correction afterwards. Maybe this time will be different and the rally will continue and morph into a bull market. There is no point speculating now about whether it will or won't because we don't know what the 16th plan will be until after the summit. All we know for sure is that the 15 plans that came before all sucked. Have you ever heard the old saying 16th time is a charm?

Long War: After a lot of spade work Egyptian Intelligence created the plan for the Iraqi Sunni Awakening movement in 2007. The Egyptian spooks and probably the CIA successfully sold this plan to General Petraeus, who then sold it to President Bush, together they implemented it, and because of this brilliant plan the Iraq War was won.

Today we learn that the radical Salafist parties (jihadist bad guys) in Egypt are physically attacking the Muslim Brotherhood in small street battles despite the good showing the bad guys have made at the polls. It is likely that Egyptian Intelligence is driving a wedge between the now moderate Brotherhood and the radicals. Egyptian Intelligence would only do this if it knew the CIA had its back. A broad picture emerges of the parts of the Long War controlled by Langley as going well.

But the parts controlled by the Pentagon are going poorly. Acting like Cambodia did in the Vietnam War, Pakistan has blocked NATO fuel and ammo supply routes. NATO is airlifting in fuel, which means it costs $400 a gallon to fuel a hum-vee. Before the supply routes were closed it cost $1 million a year to supply one NATO solider in Afghanistan. The current cost is now probably double or triple that.

Now think about the parts of Afghanistan controlled by CIA strongman Afghan General Razik around Kandahar, the birthplace of the Taliban. These regions are now more peaceful than Kabul. The Taliban are actually surrendering to the good guys in Razik's territory. Razik is known as the only man on Earth that the Taliban fears. He is so brutal that NATO will not give prisoners to him any longer because said prisoners come back mutilated from his interrogation methods. How much does it cost the US to pay for Razik's police and security forces per man? Only a few thousands dollars. The same could be said about the cost of African Union troops battling Al-Shabab. Native troops like this are very inexpensive and in reality more effective than US troops. This is called more bang for your buck. A million times more bang for your buck.

So the biggest problem we face is that the CIA is not big enough to be everywhere at once and faces huge budget cuts. Senators like to give money to the Pentagon because it creates jobs (building tanks, etc...). They don't like to give money to the CIA because no jobs are created as far as politicians can see. They can't see or don't care how many jobs are created by winning wars. As I said yesterday, keep your eye on Joe Biden, he has the CIA's back.

Welcome To The All CIA Channel

Charts: The S&P 500's 200-day moving average is 1264. The broad index is struggling with the 200-day line today. If it trades above 1264 for several days in a row, then chartists will say the summer's bear market is over. If not, we are still in a bear market.

The CIA and The Long War: Libyan oil production is ramping up ten times faster than experts predicted. The conventional war is over and there are no signs of an Islamic insurgency. This is because Qatar and the CIA are arming the Islamic militias who did the heavy fighting in the recent war. Qatar is also providing these militias with religious leadership and instruction, essentially taking them over and turning them into good bad guys. The government of Libya complains long and hard about this Qatari power base growing within their country, but to no avail. AQIM (Al-Qaeda North Africa) has abandoned Libya as too dangerous and is moving into Nigeria. Libya is becoming something like what South Korea was in the Cold War, i.e. a pro-American Pit Bull.

A couple months ago Kenya and Ethiopia sent their armies pouring over the Somali border and knocked Al-Shabab out of Mogadishu and destroyed jihadist camps near the Kenyan border. So we have Kenya, Ethiopia, and Qatar acting in concert with the CIA to clobber the bad guys in Africa without one US Marine putting his boots on the ground. This is the only way to go in the Long War.

North Sudan has almost finished conquering the disputed border regions that were left after North and South Sudan split in two. South Sudan seems to be allowing these region to be absorbed by the North. This speaks to a CIA brokered wind-down of the mini-war in Sudan.

A few months ago the CIA leaked a message to the popular press: It was getting ready to unleash another computer virus against the Iranian nuclear weapons program. Intense security measures were then undertaken by Iran to protect its nuclear facilities. Probably protection measures were relaxed at Iran's missile development program. Taking advantage of this, the CIA sent a drone or pack of drones into Iran and blew up a convoy of trucks carrying rocket fuel. This attack killed the head of Iranian missile research.

While this was going on Obama announced that all US troops would soon leave Iraq (not good). This paves the way for Israel to attack Iran. The Israeli Air Force has to fly over Turkey or Iraq or Saudi Arabia to reach Iran. To effectively bomb Iran's nuclear facilities Israel will have to make hundreds of sorties, which will take months. Any Muslim nation will launch fighters against Israel if it over-flies Muslim air space. Iraq has no real Air Force. With the US Air Force gone, Israel could easily use Iraq as a transit corridor.

Such an Israeli attack would be met by Iran's navy closing the Strait of Hormuz. The US Navy would then be forced to destroy the Iranian Navy. This would ignite a full scale war with Iran. Oil would then go to $250 a barrel and the world economy would meltdown.

So there is only one viable solution to Iran's nuke program: the CIA. Furthermore, the CIA has to convince Israel that Iran will be declawed. Israel just announced there is not an "imminent" attack on Iran, another victory for Langley.

A couple months ago Kurdish guerillas launched their biggest ever attack on the Turkish Army, killing a score of Turkish soldiers. The Kurdish attacks stopped when Turkey allowed the Free Syrian Army (FSA - good guys) to open bases in Turkey and launch attacks against Syria from these bases.

At first the FSA surgically attacked Syrian Intelligence assets. After these attacks the FSA humbly said it did not do much damage, even though it in fact did tons of damage. More recently the FSA is breaking into Syrian Army posts and snagging Sunni soldiers, who are then assimilated into the FSA (brilliant). The sudden professionalism of the FSA speaks to heavy CIA involvement.

Crippling Syria also cripples Iran and Hezbollah. This in turn gives Israel another reason not to attack Iran. By esculating one war the CIA is preventing a much larger one from occuring.

The Islamic vote in the ongoing Egyptian elections is being split between the Muslim Brotherhood and the radical Salifist parties (bad guys). All the radicals are being siphoned out of the Brotherhood and dumped into the Salifist camp. We now have to root for the Brotherhood to win and form a government just like we need to root for Islamic militias in Libya being co-opted by Qatar. As you will recall, earlier in the year I blogged that the quick rise of radical Islamic parties in Egypt was suspicious. We now see that segragating these bad guys is a good thing and paradoxically whoever "helped" the Egyptian radicals actually hurt them.

Meanwhile, the parts of the Long War controlled by the Pentagon are going poorly. So the biggest danger in the future is slashing the CIA's budget as dictated by last summer's debt deal. The biggest ally that the CIA has in DC is Joe Biden. We need to see him gain power within Team Obama and help the CIA.

CIA Short of $

Charts: Over the summer the All-World index dropped 26%. A bear market begins with a 20% drop. So the bull market that started in March of 2009 is over and a new bear has begun. One sign that this new bear has ended would be the S&P 500 trading above its 200 day moving average for several days in a row with other technical indicators turning bullish. The recent rally met savage resistance at the 200-day line (about 1270) which pushed it back into a technical correction. Therefore the charts are saying we are still in a very young bear market.

This means we have an entirely new set of Fibonacci retracement levels. Yesterday the S&P 500 found support at 1187, this is the 61.8% retracement of the first down leg in the new bear market. Today that support was shattered.

The salient technical factor of today's market is volatility. On an intraday basis this market is the most volatile in 200 years. On a closing basis it is the fifth most volatile ever. Forget the VIXX, it measures implied volatility. Actual volatility is best measured by the Excess Volatility (EV) gauge. EV measures the broad index's chart pattern as a percentage deviation from a straight over a series of 5 day periods. Right now EV is about 110%, a normal market has an EV of 30%. Only five times has it got over 100%. When it gets that high one of two things occur: 1) EV quickly drops to a normal level and a multi-year bull run ensues. 2) It drops to about 50% and several more years of bear market follow, this occurred in the mid-70s and 30s. EV has never stayed at today's levels for very long. Continued volatility is bearish. In other words, the Dow going up 500 points one day after dropping 500 points is bearish. It would be better if it retraced the loss with ten days of 50 point gains.

Fundamentals: If left to itself the private sector would absorb the default of Greek and other European government bonds with Credit Default Swaps (CDS). These are insurance-like structured financial products. CDS are shrouded in mythology, for instance they are wrongly blamed for causing the Great Recession. Recently CDS have been paying off very nicely on corporate debt defaults. There is nothing wrong with CDS. Eurozone governments are attacking private sector CDS. They have designed their bail out plans for Euro debt so CDS will not be triggered and announced that so-called naked CDS will soon be illegal. The boneheaded move to make certain CDS illegal a few weeks ago forced investors to sell Italian debt because they assumed that shortly there would be no way to hedge their exposure. The recent escalation in the sovereign debt crisis is due to this attack on private CDS.

Eurozone governments are saying that they will leverage their Euro debt bail out fund by insuring 20% of all bad debt. By itself this obviously won't work because two markets will quickly spring up: 1) The 80% of Euro debt not insured. 2) The 20% that is insured. To combat the formation of a second market for bad debt the Eurozone governments are saying they will create brand new complicated and bizarre structured financial products like CDS. To do this they would have to go to a company like Goldman Sachs. They have not done this and the new structured products don't yet exist, which is (in a way) a good thing because they would be a disaster.

The point of all this is not to cry in our beer about how stupid the Eurozone is. Rather we must be alert for signs the Eurozone is backtracking and starts saying private sector CDS are okay after all. If this doesn't happen it will be very bad.

Geopolitics: With Obama saying all American troops will be out of Iraq in a couple months the pressure on the CIA and NSA to take over all aspects of the Long War are enormous. We know the top spy agencies are over stretched because of the following incident: Several months ago an off-shoot of Islamic Jihad (Palestinian terror group) built a training camp in Egypt's Sinai peninsula where IJ fighters were trained and equipped to look just like Egyptian soldiers. The fake Egyptian soldiers attacked an Israeli outpost and nearly triggered a war between Israel and Egypt.

The Camp David Accord charges the CIA and NSA with monitoring the Sinai for military camps. They have been doing this for decades, but clearly are stretched so thin they are not doing it any longer. This is just the sort of thing they would abandon if they were being pressed everywhere else on the globe.

Libya War Rages On

Fundamentals: The stock market wants the Federal Reserve to implement QE3, printing money out of thin air to buy government bonds. Bernake knows QE3 is a horrible idea but he doesn't want to spook the markets with honesty, so he essentially said,"Probably no QE3, but maybe, we'll see in September." In a childish mood, the market took maybe as yes and rallied.

Also on Friday, Euro-zone ministers are trying to rescue the Greek bail out package, which is falling apart as Finland demands hard liquid collateral for its share of the rescue fund. Finland has talked Greece into siphoning off part of the bail out loan package and putting it into a separate account that insures Finland (and only Finland) suffers no down side. Of course all the other European creditor nations want the same deal, which will derail the bail out, force Greece to default, and destroy the world economy. Germany is trying to get Greece to give state owned real estate to the various creditor nations as collateral. If Germany succeeds, then the new bail out package is much better than the original because it would be more free market, much tougher, and it would result in harsh foreign owners taking over Greek state owned assets if payments are not met: tough love. If Germany fails, we're all screwed.

Long War: The conventional stage of the Libyan War rages on. Gaddafi still controls a sizable chunk of the country. NATO war planes and drones are operating at the same tempo as before. In one sense, the longer the conventional phase lasts, the better. It is a good thing if Gaddafi's forces are ground to dust in a conventional onslaught. It is a good thing if the bad guys fight to the last man in set piece battles and are utterly defeated. If this happens, then the guerrilla phase of the war will be much smaller.

Perhaps sensing that a horrible enemy is emerging in Libya with the new (battle hardened and pro-American) rebel government, AQIM (Al-Qaeda North Africa) is moving into Nigeria. Islamic attacks in Nigeria are exploding. This is crippling oil production and doing as much harm to the world economy as shutting down Libyan oil production. Obviously this widens the North African aspect of the Long War and guarantees that fighting will continue for decades even if the rebels win 100% in Libya.

ASS Wins War

Long War: Media reports gave the impression that the Libya War had ended yesterday, with the rebels victorious. The war still rages as of today, but the rebels are winning. As I write, the rebels are attacking Gaddafi's main command and control complex in Tripoli, Bab al-Azizya. Reports indicate they are successfully tearing apart this complex.

Right before the big rebel push into Tripoli, the CIA announced it was introducing extra Predator drones into the theater. At the time this seemed to serve only one purpose: provide a fig leaf for the imminent exposure of a much bigger CIA footprint in Libya than anyone guessed possible. And indeed, there are an increasing number of media reports of western Special Forces soldiers embedded within the rebel army.

Also, it is becoming apparent that the infrastructure damage from the NATO air campaign is almost zero. Oil refineries, pipelines, bridges, etc... have not even been scratched. But when NATO ran a similar air campaign in Kosovo, the infrastructure damage was huge. The damage in the Balkans was so great much of it has not been repaired even now. CIA drones are capable of clobbering the bad guys without damaging infrastructure to a much greater degree than traditional aerial bombardment from manned jets.

If I am correct in surmising that the CIA's drone campaign in Libya was much bigger than media reports would have us believe, then we have evidence that General Petraeus is in charge of the CIA ahead of schedule (he is supposed to take over in September). During the Iraq War Petraeus displayed a special genius for neutering the Media; this is a unique talent that he alone possesses, no other military commander can muzzle the press the way he can. It is hard to imagine a better skill set for a CIA Director.

Throughout rebel held Libya there is graffiti saying: "Thank you Britain. Thank you France." Apparently there is no graffiti saying: "Thank you America." And certainly there is no talk anywhere of the CIA's role in the Libya War. This is all to the good because America is running a global empire that dares not speak its name and America is fighting a century-long global war while voters have a desperate thirst for a century-long peace.

After Libya is mopped up, our attention must turn to Syria. And this is what we must look for: Turkey getting involved in the Syrian Civil War. We need to see graffiti inside rebel held Syria saying: "Thank you Turkey."

As always, our only concern is investing. We must never forget that there is a 100% correlation between the Anglo-Saxon Superpower (ASS) winning wars and a bull market. Today is a case in point, we are having a huge up day, but the most recent economic data is very weak.

The CIA

Libya: The Free Libya Army has assaulted and taken Tripoli. This should spell the end of the conventional phase of the Libya War. Over the weekend a sophisticated pincer movement engulfed Tripoli as a massive number of sleeper cells were activated within the capital city by imams giving a coded message through the traditional call to prayer. The sleeper cells were installed months ago. The entire operation was highly coordinated and speaks toward a much bigger CIA and French intelligence presence in Libya than anyone guessed possible. Big problems are still possible in Libya, primarily a guerrilla campaign against oil infrastructure. Western intelligence will have its hands full dealing with the aftermath of the war.

Syria: The Syrian rebels will now be emboldened by the success in Libya. Assad will have to use air power to stop them; something he has not yet done to any significant degree. NATO will have to start an air war against Assad and travel the same path that it took in Libya. If not, Iran will vastly increase its power in the region since Assad is an Iranian puppet. And Iran will then have Iraq surrounded. Iran is already engaging in a low level war against Iraq. American and European voters will go insane at the prospect of Libya style air war in Syria. It might be possible to avoid all this if Congress can somehow be forcibly removed from CIA oversight; i.e. targeted assassinations could wipe out Assad's government and Syrian rebels could be built up covertly.

Afghanistan: European leaders within NATO and western diplomats are calling for the resignation of Kandahar police chief, General Raziq, the CIA's point man in southern Afghanistan. Essentially the complaint against Raziq is that he is too hard on the Taliban. When NATO gives Raziq captured insurgent prisoners to interrogate they come back from the interrogation cells bearing the marks of obvious torture. NATO no longer gives Raziq any prisoners.

Afghan experts agree that Raziq is the only man in southern Afghanistan that the Taliban fears. The bad guys are happy they no longer will have to face Raziq if they are captured by NATO troops. But if they are captured by Razik's forces, it will now go even harder on the bad guys.

All of this highlights the crying need to get NATO, the State Department, the US Congress, and everybody else out of the CIA's face and turn it loose. By fits and starts this is indeed happening. The pace that it occurs will dictate whether the global recovery can remain intact.

All Eyes On Libya

Charts: The S&P 500 has executed a death cross. Please go to the blog below this one to reference the significance of this chart formation.

Fundamentals: Advanced economies equal 60-70% of world GDP. As a group they are currently growing at about 0.7%. Economists call this "stall speed," which means that a global recession is likely. The only hope is for emerging market economies to start growing more strongly. They are held back by roaring inflation, which forces tight monetary conditions. The inflation is caused by the high price of oil, which is primarily caused by the Libya War. Despite all the bad economic news, oil went up today. It has to come down or we are royally screwed. This can only happen if the rebels win in Libya.

Long War: The CIA is publicly saying that it is introducing 2 more Predator drones into Libya. It would only say this if its footprint in Libya has grown so large that the mainstream media is on the verge of exposing this growing footprint.

CIA fingerprints are becoming more and more obvious in Libya. We are seeing supposedly untrained rebel fighters effectively calling in NATO air strikes. The rebels are acquiring NATO satellite data of Gaddafi's troop movements even though NATO is not giving them this information.

Gaddafi's capital city of Tripoli is surrounded by the rebel army. All supplies into Tripoli are cut off. The rebels would probably like to let Tripoli starve. But the world economy needs a bloody siege and relatively quick victory.

Gaddafi is in command of small numbers of elite troops who will fight to the death in an urban combat situation. It is very hard to take a city quickly under these conditions.

The US would throw more weight behind the offensive against Tripoli if Russia and China would look the other way. Team Obama has just cancelled the sale of 55 or so advanced F-16 fighters to Taiwan. This could be Team Obama being total wooses or it could be a bargain that allows China to ignore a very heavy CIA footprint in the Libya War.

The coming offensive in the Libya War is the most important event for the world economy anywhere on Earth. Forget the big Fed meeting in Jackson Hole. It means nothing. All eyes on Libya.

Don't Count Chickens Before They Hatch

Charts: The stock market is in a rally attempt. This attempt needs to succeed or we could be in big trouble. Earlier in the year the S&P 500 battled with its 200-day moving average. The loss of this battle knocked stocks down a good 10%. The line in the sand right now is with the formation of a death cross, where the 50-day moving average plunges through the 200-day moving average; when this happens the two lines form a cross. A death cross produces a full blown bear market about 50% of the time. The current rally attempt began just as the 50-day line had curved down and intersected the 200-day line. So we were saved by the bell. If this rally attempt fails and we get a fully formed death cross, then a savage bear market is likely.

If a death cross does not materialize and the market puts in a bottom, then we need to see apathy. We need to see sideways trading. Roaring up in thin volume, as it has done for 2 1/2 years, is not good.

Long War: The Libyan rebels have Tripoli 100% surrounded and are in the process of cutting off all the oil pipelines that feed the capital city. They are planning on choking Tripoli and fomenting rebellion from within. And indeed there have been small armed uprisings inside the city and this is why Gaddafi's top lieutenants are fleeing the ship. Now that he is cornered and on the brink of defeat, Gaddafi must decide whether to use chemical weapons or not. He practice fired a Scud missile yesterday, obviously a prelude to delivering chemical warheads into the rebel held city of Misrata.

Scuds are clumsy. Helicopters are the best way to deliver chemical weapons but then Gaddafi would have to fight through the NATO air force that is constantly overhead. So if he goes down that path, very few chemical weapons will get through. More to the point, the moral authority of NATO will grow immensely if it stops a chemical attack.

And if NATO wins the Libya War, it will be immensely strengthened. It will then start doing better in Afghanistan. No point in counting your chickens before they hatch. If NATO loses a war for the first time ever, the results will be apocalyptic.

Cut Butter, Not Guns

Charts: Earlier this week the all world index at one point registered a 20% decline from its April highs, nipping into bear market territory. Despite that, the market is not technically driven, rather fundamentals and geopolitics are the driving forces.

Fundamentals: China is trying to ride to the rescue again as the world economy teeters on the brink of a horrific double-dip recession. The Great Dragon is letting its currency rise sharply against the dollar, which will give a boost to American exports and lower the price of oil within China. With lower oil prices, Chinese consumers will spend more and overall imports into China will increase which will help Europe and the rest of the world.

China can only raise its currency by buying less American debt. This means there has to be less US debt hitting the credit markets or interest rates will rise in America, which will force a global double-dip recession. So the Congressional super panel charged with reining in US spending is going to have to really do some cutting and then Obama is going to have to back these cuts. If not, China cannot ride to the rescue.

Also, if the super panel doesn't make real cuts to domestic spending it will trigger automatic "doomsday" spending cuts to the CIA and Pentagon, which will be catastrophic to the Long War and Cold War II.

Cold War II: This week China launched its first ever aircraft carrier for a trial run. At the same time, North Korea shelled the same South Korean island that it has attacked in the past. The North Korean shells splashed into the ocean, but came close to doing real damage. South Korea responded with a heavy artillery barrage, with its shells also falling into the ocean. South Korea had the last word, as its shells landed closer and closer to North Korean gun placements, the North tucked tail and silenced its cannons. These two incidents illustrate how huge cuts to the US Navy aren't really possible. Insiders say China plans on building a fleet of four aircraft carrier battle groups by 2030.

Long War: After SEAL Team 6 lost over two dozen men to a Taliban RPG, NATO and the CIA hunted down and killed the Taliban unit responsible. The next day 5 more US soldiers were killed in Afghanistan. President Obama made a speech saying the US is not leaving Afghanistan after this bloody week of combat. None of the doves in Congress made a peep. Obama did a good job with his speech. But the above incident tells us that huge cuts to the Army, USMC, and CIA are not possible.

If you can't make big cuts in the Army, USMC, Navy or CIA, then you aren't making big cuts to Defense. So the Congressional super panel is going to have to cut butter, not guns, or we're all screwed.

Through The Lens of The Long War II

Long War: Through QE2, the Empire (America) tried to tax its provinces by debasing its currency; exactly as its predecessor (ancient Rome) did so many times. The only way a tax like this can stick is if the Empire keeps winning its wars. Is the tax hike sticking? Is America forcing its debt down the world's throat? The S&P downgrade of America's debt was followed by the biggest one day combat loss ever in Afghanistan. Not only did 31 Navy SEALs die as a Taliban RPG took out a transport helicopter, there were 4 other combat deaths that day from separate firefights. Even though financial writers will make no connection between the combat losses in Afghanistan and the debt downgrade, the markets are making a connection, which is amplifying the ongoing stock market correction. Several country stock markets have already been pushed deep into bear territory.

But also over the weekend the CIA backed African Union Army and pro-American Islamic militias seized control of 90% of Mogadishu, the capital of Somalia, dealing Al-Qaeda backed Al-Shabab a nearly mortal blow.

And the Libya rebels have seized a key town which opens up the invasion route to Tripoli, even as they battle Gaddafi/Al-Qaeda sleeper cells that have been activated within the rebel heartland. Overall, a good situation in Libya but clearly not enough CIA presence if bad guy sleeper cells exist inside good guy territory.

So CIA-only Long War hotspots are doing okay.

The recent economic weakness is very good for Al-Qaeda, just as the Great Depression was very good for European Fascism. With oil prices falling, Mideastern economies will only get worse and the ranks of the bad guys will swell. With a nearly infinite pool of jihadist fighters to draw upon, the Long War is morphing into a structure that can not be dealt with by conventional Western military forces.

But the demands on the CIA are many times greater than its capacity and the US Congress is still interfering in Company business, exhibiting an isolationist streak that can only be described as toxic. One example: the rebels in Syria need to be supported by the CIA and they need to win. If Assad wins, then Iran's power is vastly multiplied. Iran is already attacking Iraq by supporting Shiite insurgents. If Iraq were surrounded by both a hostile Iran and Syria, the attacks would soon come from two directions and a conventional invasion would not be far off and the price of oil would reach $300 a barrel.

There are only two ways this dire situation can be rectified: Either Congress increases the CIA's budget by ten times or it absolutely untethers the CIA from all control, a complete free hand in all Company affairs. A sign of this latter possibility would be if DEA agents were pulled out of Afghanistan and somehow media attention is curtailed from the CIA's take over of the world's heroin trade as it tears this cash cow away from the Taliban.

Jobs

Fundamentals: The economy will go into a double-dip recession if jobs growth doesn't pick up. We have three jobs reports to consider. Yesterday the ADP jobs report came in a little bit better than expected. The ADP survey is skewed toward construction and contractors and as a consequence it is the least reliable of the three.

The government's payroll survey said 117,000 jobs were created. This is a horrible number, but better than expected. In the Great Moderation Era (GME) investors are trained to react positively to any data that beats a forecast, even if that data sucks, the forecast beat is everything. Investors are also trained to accept the payroll survey as more accurate than the household survey because supposedly the Federal Reserve only looks at the payroll survey. The GME is characterized by an almost religious belief in the power of the Fed. As far as accuracy, the payroll survey only looks at bigger companies, not self-employed people or very small businesses.

The household survey said 38,000 jobs were lost last month. The month before it said 445,000 jobs were lost. This survey looks at a wide selections of households, where people work for large companies, small ones, and are self-employed; in other words all facets of the labor market are included. It, however, has a smaller sampling size than the payroll survey, thus the Fed's supposed focus on payroll. Over time the smaller sampling size is less important because the household survey is casting its net over an increasingly bigger selections of households, therefore trends established by the household survey over several months should be more accurate than the other surveys.

Other data indicate the household survey is more accurate. So far this year the US economy is growing at a .8% annualized GDP rate. PMI surveys are plunging at a rate equivalent to what happened during the Great Recession, and so forth.

Another troubling economic indicator to watch is the yield on the ten year Italian and Spanish government bond. They both closed yesterday at about 6.2%. A few months ago they were around 4%. If they reach 7%, then Italy and Spain will probably need to be bailed out since the three PIGs needed to be bailed out when their debt yield reached 7%. It seems that the only way to stop the two large Mediterranean countries from reaching 7% would be if the ECB were to start aggressively buying their debt. There are rumors today that this might be happening.

If Spain and Italy require bailing out in the same way that the PIGs did it will be very bad for the global economy because France and Belgium will then need to be bailed out as well. In other words, Germany will have to essentially bail out most of the Euro-Zone, which is impossible.

Through The Lens of The Long War

Long War: The Stock Market is experiencing a historic correction. There hasn't been a downturn this bad in decades. It has many causes, primarily the sovereign debt crisis, which has spread to Italy and Spain, countries that are so big if they need to be bailed out the Euro-zone will be bankrupt. But you can read about all this in the Wall Street Journal. Today let's look at the stock market melt down through the lens of the Long War.

The bill that just raised America's debt ceiling only pretends to cut domestic spending while it actually slashes the budgets of the Pentagon and the CIA. It is unexpected and shocking that the CIA should be singled out for draconian cuts. It would be far better to eliminate aircraft carrier battle groups and actually increase the CIA's budget. That is not in the cards.

Consider recent Long War events... Gaddafi announced he is forming an alliance with Islamic radicals in rebel controlled Libya. Through his son, he is saying that after defeating the rebels, Libya will become a Jihadist nation, like Iran. His alliance has already born fruit, it seems to be responsible for the assassination of the rebels top general. Al-Qaeda will be only too happy to cozy up to Gaddafi, who still has access to billions of dollars in hard currency and gold.

There is a small CIA presence in Libya. But for it to handle a problem of this size there should be a huge presence. Unfortunately there is yet another resolution waiting in the wings of Congress to curtail America's involvement in the Libya War. While bad guys across the globe may tremble at the might of the CIA, the Agency itself trembles in fear of the US Congress. Right now Washington DC is saying it is okay to lose a war. This stance, if fully implemented, has a 100% correlation with a bear market.

And finally, in recent days, the Islamic rebellions in China and Thailand have flared up dramatically. Obviously the US Army is not going to land in Thailand or China. The Long War is morphing into a conflict that only the CIA can deal with.

There are currently three Long War type wars in oil producing regions (Libya, Sudan, and Yemen), this is jacking up the price of oil and crushing global growth. The debt crisis has only one solution: more growth. Every actor in the crisis has cut government spending as much as it will be cut. The Euro-Zone countries have austerity budgets in place. America has made cuts to the war fighters and that is all that will be cut. Growth will only come with lower oil prices.

Al-Zawahiri Is A Genius

Charts: At Midday on August 2, the S&P 500 has crashed through its 200-day moving average in heavy volume. This is not good.

Fundamentals: Nobody is fooled by Congress's phony budget deal. China, European bond investors, average voters on the street, everyone is seeing through the smoke and mirrors. The black hole of America's roaring debt machine is sucking up the world's capital, diverting it away from productive uses and into Uncle Sam's gaping maw.

Long War: The only real cuts in the recently voted budget deal is to the Pentagon and CIA. The only way America can tax the world with its debt is if we clobber the bad guys. This is hard to do with budgets getting slashed.

Meanwhile, out on the Long War battlefields, it is getting hairy. China's Al-Qadea linked Islamic insurgency is exploding across the mineral rich west. If it gets much worse, China will not be able to access vital mineral resources and the world's only big growth machine will falter.

Stepping away and looking at the big picture: Al-Qaeda's new leader, Al-Zawahiri, has a policy of attacking everywhere except in the American heartland. He understands the Tea Party and knows they will give up the rest of the world if America itself is not threatened.

But America is dependent on overseas oil and markets. The only GDP growth we are seeing is coming from exports. If not for exports we would be in a second recession. America cannot give up its global empire and sail blissfully along by itself.

1948, Start Of A Rocky Period

Fundamentals: The "baseline" for the US government budget is the trajectory spending will take if Congress does nothing. In other words, the baseline means all existing laws, like ObamaCare, go into affect. The baseline calls for spending to increase by 7% a year for the next 10 years, which amounts to about $45 trillion in total spending.

The baseline is wrong. Consider Obamacare. The pilot programs running in a few states to test ObamaCare are running 90% over projections. The original projections for Medicare in the 1960s also understated the eventual cost by 90%, so there is a historical precedent for these projections to be inaccurate.

But even if the baseline were accurate, the deal being cobbled together in Washington over the weekend only cuts $1 trillion in spending from the baseline over the next 10 years and another $1 trillion worth of cuts is promised through smoke and mirrors. So spending will grow by 6.5% each year rather 7%.

So we need an election with fiscal hawks winning both chambers of Congress to enact real cuts. If the deal over the weekend convinces voters that the problem has been solved and the coming election does not revolve around spending cuts, then it will be very bad.

Long War: Gaddafi apparently has activated tribal elements within the Free Libya Army that are loyal to him, a fifth column. These elements have assassinated the top general of the FLA and have started a small battle around Benghazi, this is FLA territory. As a consequence, the FLA is back on its heels.

The above development is not the end of the world and the FLA is still overall winning the Libya War. However, it is a reminder that the Long War is at the same stage the Cold War was at in about 1948. We are not at a 1982 moment where victory is clearly in sight and the news is so good it powers a bull market over any obstacles.

An Instant Balanced Budget

Fundamentals: Today, after the bell, the Obama administration is supposed to tell us how it will pick and choose paying government obligations. This comes after Congressional gridlock has made raising the debt ceiling impossible in the short term. If the picking and choosing is done wisely, then we will instantly have a balanced budget and massive spending cuts might not derail the economy. No matter what there will be a Keynesian hit with the government spigot turned off so quickly. It is hard to guess what psychological effect an instant balanced budget will have on global financial markets.

Long War: In Afghanistan, Kandahar: Over the past few weeks there have been five assassinations of political leaders, all of them President Karzai's allies. The most recent was yesterday when a suicide bomber killed the mayor of Kandahar, which almost completely destroys Karzai's influence in southern Afghanistan. The Taliban was at first surprised by the assassination but then decided to take credit for it. Here is an abbreviated quote from the assassinated mayor's daughter: "The Taliban did not kill my father... there are elements within... the police chiefs, who are criminals... and President Obama invests in them."

So it is possible that the CIA's new point man in southern Afghanistan, Police Chief of Kandahar General Razik, is behind all these assassinations.

In the western mountains of Afghanistan the rebels made their biggest one day advance ever against Gaddafi's army. The rebels say they were given satellite data by NATO. But NATO says it did no such thing. So again we have an example of CIA fingerprints.

John Boehner Man of the Hour

Charts: Up until a few weeks ago the current bull market had seen low volatility and one of the highest correlations between different stocks in history. There was no point in even buying individual stocks rather than an index because everything was moving up or down in lockstep. But now, all of a sudden, we have the weakest correlation in history. If one stock beats its earning forecast by a penny it might go up 20% in one day. If another stock misses by a penny it might go down by 20% in one day. And volatility is very high. This shift speaks to naked fear permeating the market. The debt ceiling debate is the source of all this fear.

Fundamentals: Speaker Boehner is holding a vote in the House tonight on his debt plan. It makes some real cuts, although not enough. Its main feature is to extend the debt ceiling only 6 months and therefore make America's debt crisis the focal point of the election. This is very smart because real spending cuts can only come by way of a voter mandate with the Republicans taking both the House and the Senate. Contrary to what the Tea Party thinks, real spending cuts cannot be achieved right now. So tonight's vote is crucial. If Boehner gets his way in the House, then the Senate will quickly vote his plan down. Boehner will then have to craft a new bill with Sen. Reid over the weekend, to do this he will have to give away some spending cuts. Then both chambers will have to vote on the new bill and it must pass before anything resembling a default on America's debt can occur, including a downgrade.

The key factor in the new Boehner/Reid bill will not be how much spending is slashed, rather it will be whether or not the spending ceiling is extended to right before the election or after the election. If it is extended until after the election, then voters can pretend that the problem is solved and they can vote for big spending Democrats and the crisis will start all over again.

That is unless a failure of Boehner's bill immediately reignites the crisis. Interest rates are soaring in Italy and Spain. Cyprus is highly exposed to Greek debt and is teetering on default. A tiny shove and Cyprus will be the first European country to default and contagion will spread through Europe like wildfire, plunging the globe back into recession.

US money market mutual funds represent a key source of short term funding for European banks. These funds are jerking hundreds of billions worth of funding out of the European financial markets. A tiny shove and they will jerk everything out, clobbering European banks.

The majority of central banks across the globe have US dollars as their primary source of reserve. If Boehner's plan fails, the dollar will crash and central banks will become insolvent.

These are just a couple examples. Many other bad things will happen if Boehner's plan fails.

Long War: Today's super volatile stock market is similar to the market in 1948. The charts look exactly alike. Charts did not stabilize until after the Korean War in the early 50s when America entered a period where the Pentagon was not fighting the Cold War, but the CIA was. So this blog will continue to chart CIA activity.

America and World Need The Man

Charts: If the US budget crisis is resolved we will want to buy stocks by using chart analysis. Over the years the KOSPI (Korea) index has led the indexes of Singapore and Taiwan. In other words, Korea moves first and the others follow. YTD Korea is up 8% and Taiwan is down 2%. EWT is the ticker symbol for Taiwan.

Fundamentals: In a whining tone, President Obama gave a speech last night where he begged America to support his vision of pretending to cut the budget after the elections are over. Then House Speaker Boehner gave a speech with a grim face outlining a plan for painful cuts before the election and then more cuts after the election. Boehner promises more unpleasant debate starting now and continuing for years. His plan will make the election about budget cuts. Boehner represents "The Man." You know, the guy starry-eyed left wing college students sell out to when they start making money. In day to day life The Man tells young people to cut up their credit cards and pay cash. If you don't have the cash, go without. The Man is no fun.

Long War: Red-faced, the Pentagon is saying billions of dollars in US Afghan military support contracts have flowed straight into the pockets of the Taliban. America's allies in Afghanistan are corrupt and lazy because aid money and contracts have been thrown around the same way pork barrel spending sloshes around in the US.

In Libya, the Free Libya Army is acquiring a few mine clearing vehicles but 90% of the mine clearing is done by small groups of soldiers poking into sand dunes with sticks while braving withering fire from Gaddafi's Army. These soldiers don't even wear body armor. The FLA doesn't get billion dollar pork barrel contracts from Uncle Sam, just training, leadership, and some limited material support. Yet the FLA is winning while the Afghan Army flounders. You can call this approach The Man or tough love or old school CIA; either way this is the approach that works.

US Debt Debate

Fundamentals: There seems to be four different possible outcomes to the US debt ceiling crisis: 1) President Obama could evoke the 14th amendment and raise the debt ceiling by executive order. If this happened there would be no spending cuts and US debt would get downgraded by the rating agencies. This would jack interest rates and threaten the recovery. 2) The Republicans are trying to pass a resolution in the House that will cut spending by a couple trillion, keep taxes the same, and raise the debt limit only enough to put the issue back into play right before the next election. This is the best scenario on the table right now because it would make cutting the deficit the center piece of the next election. 3) Democrats have a plan where they pretend to cut spending after the election, which they can then ignore if they keep control of the Senate. This would be very bad. 4) If there is no resolution before August 2, then the US will not default on its debt because Treasury can pay interest on the debt, pay all of social security, and keep the Pentagon fully funded with incoming tax receipts. But every other Federal obligation would be in jeopardy. So the rating agencies would probably radically downgrade US debt, which would really jack interest rates and probably trigger another recession.

Long War: Qatar is providing the Libyan rebels with advanced mine detection vehicles to get through the huge mine fields around Brega. Qatar is also ramping up its support for the rebels in a hundred other ways. The rebels are saying that Gaddafi can stay in Libya if he surrenders and agress to live in a highly guarded compound. Presumably Qatar and the CIA are involved in these talks and there may be an endgame in the Libya War.

If Gaddafi were to fall, the rebellion in Syria would explode. The Syrian rebels would see that the sacrifice and misery they have endured could result in victory. The US would have no choice but to support the newly energized Syrian rebels because Assad's government is a puppet of Iran's and Iran will do whatever it takes to keep control of Syria. Remember, Iran's other puppets (the Houthi rebels in northern Yemen and Hezbollah in Lebanon) have made big gains lately. Also, Iran is now supporting Shiite rebels in Iraq with advanced weapons. Iran is on the march and the US cannot allow this. The US public will not want any US involvement in the Syrian rebellion, but perhaps the CIA can get the job done without raising any red flags in the media. It will have to act through Saudi Arabia as it is now acting through Qatar in Libya. There is some evidence of Saudi involvement in Syria already.

The CIA has killed yet another Iranian nuclear weapon researcher in Tehran. This is good news to Saudi Arabia and may help goad them into helping in Yemen and Syria.

In Yemen, Al-Qaeda suicide bombers are hitting Yemeni Army supply convoys that are supporting the war effort in the south. This is hurting the momentum of the good guys and this little war is forming a stalemate. A New York Times Mideast correspondent described what happened when Al-Qaeda took control of Abyan province a few months ago. Jihadist fighters broke into bank vaults and seized stacks of hard currency. The bad guys didn't pocket this loot. Instead they handed it out to people on the street. So we can see that Al-Qaeda is 100% free of corruption and has incredible discipline. This just shows how hard it will be to defeat these bad guys.