Awarding Obama the Peace Prize has set off a comical orgy of denial.    Personally I think it should have gone to Bill Clinton but he is past history.  Clinton normalized conditions both in Northern Island and the Balkans, created a quasi stability in the Middle East, further opened up China and temporarily shut down North Korea’s nuclear program.  In Kosovo he used aggression in a metered fashion to accomplish strategic goals impossible through negotiation without a single US causality or putting a boot on the ground.  Kosovo was probably the only US war fought on budget, on a tight schedule, accomplished every intended goal and targeted the exact group responsible for aggression.  The war was far more effective in creating peace, holding the EU together and revitalizing the Balkans than any embargo or attempts at EU appeasement.

The only legitimate criticism of Obama is the award of the prize being premature.  With Afghanistan looming as another possible Vietnam, Obama must thread the needle very carefully.  No one wants a resurgence of the Taliban, but at the same time in a head to head contest the US loses.  However the criticism of Obama having done nothing is bogus and prejudice.  I know there people reading this who hate Obama and will never admit he has any good ideas, but a careful reading of the facts gives insight into what the future holds.  I am far more interested in the accurate interpretation of outcomes than supporting blind prejudice.  So lets look at his accomplishments.

Iran: The US is now negotiating with Iran over nuclear development and has exposed Iran’s secret development site.  While the US did not back the opposition in getting a fair election count, negotiations are better than the Cheney Plan of bombing Iran – something Seymour Hersh claimed was on the table.

Iraq: US troops are no longer engaged in direct fighting.  Yes this was on its way under Bush, but there is doubt that it would have occurred as quickly under McCain.

Israel:  Obama told Israel to get its act together and stop building new settlements.  Arabas has tabled a report critical of Israel.  While the soldier captured by the Palestinians has yet to be released there is a bit on normalization between Israel and Palestine.

North Korea: Obama has normalized dialog with North Korea and with the help of Bill Clinton recovered the two US reporters held hostage. 

Russia: Obama opened dialog with Russia achieving key concessions on the Middle East and strategic arms.  He set aside the development of SDI and pulled back on arming parts of Europe that would be a direct threat to Russia.  One of the keys to a more peaceful world is bringing Russia fully into the community of nations bonding them stronger to the EU.  Considering the fact, with Rice, one of the first acts of the Bush administration was to declare verbal war in Russia in an attempt to reignite the Cold War, Obama’s overtures to Russia are enlightened and further push memories of the Cold War off into history where it belongs.

Pirates: Obama acted coolly and effectively in the first challenge to his leadership in recovering a US flagged vessel captured by Somali pirates.  No one has touched a US flagged vessel since.  While I personally think piracy is something that should be given top global priority and establishing a “hands off” policy on American flagged vessels is an important step.

Cuba:  While the opening of Cuba was inevitable a Jeb Bush Administration would not have done it.  Bush / Cheney hesitated on the logical renewal of relations with Cuba much to the advantage of Chavez. 

Gitmo: While not yet closed the closing of Gitmo and the distribution of the remaining prisoners is hugely important in sending a message of fairness to the world.  The handling of Gitmo is probably the biggest black eye on the face of US foreign policy and human rights recognition ever perpetrated by any administration. 

The concept of peace is not making peace with your friends and building stronger barriers against your enemies.  As the saying goes keep your friends close and your enemies closer, the definition of peace is how you relate to your enemies.  War is costly and ineffective.  History shows few wars have ever accomplished much in the way of permanent change or the reduction of violence.  The cost of wars brought down the Roman Empire and the Soviet Union.  Wars severely limited the effectiveness of the British Empire – an empire built on trade. 

It is not what Obama has accomplished – although the list for such a short time is impressive – it is the tone his administration has set in embracing ones enemies with attempts to find solutions to complex problems.  Obama’s approach is the necessary ingredient to the continued growth and stability of globalization and I think in many ways as flawed as past Peace Awards have been, this one is forward thinking and as close as any award funded by dynamite can be.

10.12.09 – Today the VAI (Von Baranov Acceleration Indicator) on the S&P crossed positively just above the zero line.  The VAI is a very short term indicator and is generally followed by as much as three weeks of strength.  The VAI often precedes period of rapid price acceleration.  The acceleration and location of the crossing is significant to outcomes and the current crossing is strong enough to support a quick move to over 1150 on the S&P.  Buying within a day or two of a crossing often offers a low risk entry point for short tem trades.  Lets see how this one unflolds.

From a linear perspective the US Government as a financial entity is kaput.  Current debt and future debt obligations overwhelm the ability to tax.  Few societies have survived such overburdening.  However, one needs to step back and parse the reality from the political rhetoric.

In the following article Newsweek takes on current perceptions of the stimulus package and refutes many commonly held beliefs.

http://www.newsweek.com/id/217358

Even it you generally fail to read links and are more interested in my comments, it worth looking at the article from the one fact that the vast majority of the stimulus funds are still sitting in reserve.  When the Stimulus package was being legislated I wrote up a list of immediate low cost things the government could do to set the economy on the road to recovery.  Sadly, Congress has no insight into the needs of the people on the street – the things that most benefit the pocketbook of the majority. 

Now I may be off a bit on this but by my calculations there is $300 billion in TARP funds not utilized and based on this article $600 billion of Stimulus funds unused.  It has been suggested both because of the recession and the extra spending the first year of the Obama Administration will rack up an unprecedented $1 trillion deficit.  Detractors make the deficit closer to $2 Trillion which by comparison makes the Bush / Cheney carefree spending ways look conservative.  Instead, as the Bush / Cheney constantly returning to Congress for further “off budget” appropriations, the Obama Administration thought ahead and asked for money to be spent as needed over time.

Why is this important?  First off, unlike the extreme hubris over winning quickly in Iraq, the current Administration has no real expectations on outcomes.  The future being unknown, having ready reserves is the best policy.  For example, no one (well except this writer) expected the US stock market to bounce back as quickly as it has.  There are strong signs of recovery in the financial sector and from my thumb nail survey there are many companies who made panic job cuts and now need to re-hire people.  Add in the continued growth of the technology and information sector and the current Juglar up swing is in tact.  There is no recession at Google.  They may have other problems but an economic slow down is not one of them.  As the economy accelerates the information sector will be, much like the Dot Com Boom, the forge that creates new wealth.

Ok lets return to the Stimulus Package and examine why it is different from the Iraq War.  (Lets ignore the Afghan War since its initial intent was revenge and who knows where it is going today).  When a country wages war they stimulate the domestic economy at the price of sacrifice.  As an extreme example the economy boomed during WW II but there was little to buy.  Truman saw the economy improved due to war spending for Korea.  However, war spending has a detrimental impact on wealth.  Since war destroys assets ( traditional economics ) as wars continue they become a burden on the wealth of a nation.  Vast amounts spent on the Pentagon budget is a direct tax on the US economy making the US competitive.  Fail to believe this?  Compare the long term growth rates of the US economy during and after the cold war with the economic growth rates of industrial countries not funding massive defense budgets – like Japan and the EU.

However, not all government spending depreciates wealth.  When government – even inefficiently – funds infrastructure development the return is greater than the money spent.  The returns on the Grand Coolie Dam and TVA, the Interstate Highway System, NASA and many other government or government supported developments all add wealth to the nation.  Sure there are occasional boondoggles to obsess over but they are often short lived and account for a small percentage of public spending.  Intellectually we allow everyone their mistakes but condemn government for not being God like perfect.

What is the dollar return on infrastructure spending?  No one really knows since there are so many intangible and unmeasured benefits.  Repairing a bridge before it falls down and kills people is not measured in GDP gained from the lack of a loss of life.  Few measure the grain in productive hours when workers are no longer stuck in traffic jams.  What remains clear is a large portion of the unspent stimulus funds will go to infrastructure development.  Even efforts to build a medical records data base has positive economic benefits adding to GDP over time. Sorting out issues with health care can unburden the corporation increasing ROI again adding to GDP.

I am not alone in an optimistic opinion.  While the Stock Market rally portends a quicker than expected economic recovery – which I have shown supported by the Kitchin, Juglar and Kondratyev’s cycles – the Dollar is also signally improved US fiscal management.  Under the Bush / Cheney budgets deficits the US Dollar declined 35% in value against world currencies and about 50% against the Euro.  This was after Clinton’s balanced budgets efforts drove the dollar dramatically higher.  Since Obama took off the Dollar has declined 10%, however this decline is from an anticipation rally in the dollar.  On a net basis off the Bush lows the dollar shows a 6% gain under Obama.  Thus instead of crashing, the Dollar, as I anticipated held its own.

This one factor against a potential record deficit and very low US interest rates is an important future indicator.  Relative to the rest of the world the currency markets are anticipating greater US economic strength and better fiscal management.  Perhaps the Newsweek article in destroying myths is showing smart investors a trend that belies common perception.  There are many more indications of a coming US renaissance but the base for all periods of economic growth lies with the financial markets.  Today’s financial markets are pointing to a much stronger US and global economy.

Below are comments recently made to a friend who is currently concerned about the current bull market.  I thought an edited version would be worthwhile to share.

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I do not see 20,000 tomorrow and not without a correction.  I do see the possibility by 2012 at the peak of the next Juglar Cycle. 

One thing to look at is the industry sector charts.  Take a look at Energy, Basic Materials, Transportation and a few other sectors.  You will be hard pressed to make a bearish case for Basic Materials.  The sector barely participated in the decline bottoming in November 2008 and the index is now up 250% from its lows.  One can discount the importance of the move by Basic Materials by saying it is a single sector of the market, but nothing more clearly shows the Kitchin inventory cycle.  Advances in the Basic Materials sector is often the precursor of major bull markets.  Basic Materials was one of the best performing sectors off the December 1974 bottom.

I am concerned about the market getting ahead of itself and the hype around Dow 10,000 makes me nervous.  However, I have a very difficult time making a case for new lows or a protracted bear market from here.  Lets normalize the averages a bit.  When I got bearish in late 2007 I was looking for a maximum of a 40% decline on the Dow Industrials.  Technically that put a floor under the Dow at 10,000.  Yet the Dow in a panic went much lower.  We have to ask why.  Was the move justified?  I say no.  My argument is the extraordinary condition leading to the decline was forced liquidation.  When the FED changed the rules of mark to market in late March 2009 the stock market bottomed.  This one rule change is significant because it demonstrates value existed outside of market pricing.

Yes I know the market makes the day, but at time extraordinary conditions prevail.  Such circumstances are rare and only known in retrospect but that is how traders like you and I make money.  If one works off this assumption of 10,000 being a nominal correction point for the Dow then the current recovery is just a booking adjustment for the Dow.   Now if I use some projections here say the 2.3 multiplier for the 7000 point drop on the Dow then I get an easy 20,000.  If I use the projected 40% drop on the Dow applying it to the 10,000 base I still come up just shy of 20,000.

If I then revert to the Kitchin Inventory Cycle of 41.5 months off the 2007 highs and make March 2009 the bottom then there is a 21 month rise from the lows which puts the next peak in the 2011 time frame.  Add in the impact of the Juglar Cycle with a peak in 2012 things kind of works out.

Now I look at the current Volume explosion and all I can see is there is more money flowing into the market than reflected in price.  Well this is pretty much standard.  In all markets inventory has to be accumulated before prices move.  I have seen this time and again in real estate – especially here in Marin.  At all times someone must own the outstanding inventory of stock.  The mass liquidation from weak hands offered those with liquidity a golden – probably a once in the lifetime - opportunity to accumulate stock at bargain prices.  As inventory is moved from forced liquidation to investment less and less inventory is available.  Those late comers reaching the conclusion the decline is over have less stock inventory from which to make purchases, thus prices can rise faster on lower volume.   

Hey I could be all wet here, but like the Dot Com Boom where many could not believe the ongoing strength current conditions are unusual and cannot be measured by parameters used for the past 30 years.

Oh by the way – the scale down portfolio I proposed in response to David Smith’s question is and has been profitable for some time.  The calling of the bottom by the experts – something I said most would blow – was a disaster.  Few picked the low and those that did got bearish after the first rally.  So far the scale down and hold approach seems to be the most effective strategy.

E. V. Baranov - CEO

The Kondratyev Theory Letter ( The Letter )

http://www.kondratyev.com/

The four components of the Baranov Long Wave Model are Financial at the base, Innovation creating growth, Social unrest limiting growth and Geopolitical change.  The Growth Period (2002 to 2026), driven by innovation, is stunted by the current financial turmoil.  The evolution of venture funding and the key components of the sub prime mess are reactions to a failed financial paradigm.  Innovation demands new avenues of funding.  Indeed as Dr. Juglar noted each boom seems to invent its own currency.  Changes taking place today are forming a new financial base.  The evolved system will be stronger and more resilient.

Change requires breaking down past social, financial and political structures.  With each transition society finds its whipping boy or singles out someone for persecution.  Every period has its Dreyfus, Fatty Arbuckle, Alger Hiss, Roman Polanski, Angela Davis, Air Traffic Controllers, ACLU, Dan Rather, Martha Stewart, Valery Plame and now Ken Lewis.  Targets of persecution are representative of underlying social change.  On occasion the target for persecution is as guilty as sin, but in most cases social pressure out weights rationality. 

The treatment of Ken Lewis by the Obama Administration is a significant transitional sign post.  When the Bush Administration set up Dan Rather and 60 minutes with forged documents they sent a very strong message to the Press to stay in line.  If Rove and company could take down Dan Rather then what chance did a line reporter have in writing unflattering reports about the Bush Administration?  The destruction of 60 Minutes, classic example of fascism, had a chilling effect on all reporting in the US.  With Ken Lewis’ forced retirement the Obama Administration is sending the same message to the banking industry. 

What was Ken Lewis’ big sin?  Certainly as far as banking sins Bank of America was lily white.  They had not taken on unstable mortgages and were at the time of the Sub Prime crash viable and profitable.  Bank of America was so stable Warren Buffett began accumulating stock at 50.  When asked to step up and assume some of the systemic risk created by unregulated mortgages Bank of America came forward absorbing Countrywide with no need of Government funding.  While Randi Rhodes made uneducated comments on Bank of America spending TARP funds the truth is Bank of America did not have a need for TARP money until they were forced to take over Merrill Lynch.  At the time no one knew or could know the extent of damage at Merrill, yet when Ken Lewis asked the government for more TARP funds to manage Merrill he was refused.  He then offered to return Merrill to the government, which the response was – you keep Merrill or the government will have you removed from Bank of America and replaced with someone who will not whine.

This precipitated Lewis’ exit from the Whitehouse and the yet famous picture that made – in full color – the front page of the Wall Street Journal.  It was obvious Lewis was angry (well he was far more than that) and became verbal about the screwing Bank of America took from the government.  Here is where I believe his real sin lies.  His willingness to tell the truth and do his job putting the share holders of the Bank first is unique.  And here we come to the real problem facing the US today.

A society thrives by the wealth it creates.  I will be the first to admit the insurance, securities and banking industries need a good cleaning.  Too big to fail is really too big to exist.  Installing firewalls, outlawing negative amortization and segmenting the business are all important components to reforming and creating a robust banking system.  The last two up grades have seen a break up of large companies through anti-trust actions.  The banking industry is due for some anti-trust action and certainly a lot of regulation and consumer protection. 

However, what the Obama Administration has done in its attacks on Ken Lewis is effectively to nationalize the largest bank in the world.  If the problem of the Sub Prime crisis really came down to the lack of diversification through the securitization and creating of interlocking financial instruments, then transferring control of the largest bank in the world to the largest and most powerful political entity in the world does not make a lot of sense.  The sheer size of the financial crisis was the problem.  While the Hunt brothers causes problems with their silver play or LTCM was threatened by the default of interest on Russian Bonds, what happens when a country with debt of 14 Trillion collides with poor management of a large bank that they have now made unstable.  Perhaps the luckiest guy in this whole mess is Ken Lewis as he gets to go home and play golf while drawing down a nice pension.  But then again Ken I would not get too comfortable with your pension.

Lets return to wealth creation.  Wealth is generated when someone creates a product or even a service.  Other than government infrastructure development the only entity creating wealth is the corporation – and of course the many small and independent businesses.  Over the past thirty or more years the US has witnessed the steady erosion of its job base.  This erosion comes not from off shore jobs.  When a job is transferred to a cheaper labor market more wealth is created.  The erosion comes from the large number of government support jobs.  When you get an inspection on your car, when extra paper work is required for a home loan, when the government mandates almost anything it creates more government support jobs and thus raises taxes while reducing overall wealth.

Once the government owns a bank then it can dictate social changes and cater to the current political whim.  Exxon is condemned by the average liberal because they stick to what they know best – developing oil resources – and does not spend large sums of money on alternatives.  In large part the liberal agenda is to use the corporate structure to implement social and politically correct behavior.  How the restructuring of the US banking system unfolds will be critical to the relative prosperity of the US.  The Financial system is the foundation of a society.  Get this one wrong and any stimulated growth will eventually just as the bridge in Minnesota when maintenance funds were diverted to government subsidies Ethanol.  The US government dictating CEO pay, who runs or does not run major corporations, which corporations get bail outs and which do not all is the wrong path to take.  Lets all hope and pray such actions are an aberration soon to be corrected by competition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Howard Hill has started a blog. 

http://mindonmoney.wordpress.com/

While many of you on the list know Howard from his posts here and on the Colorado Long Wave list, what you may not know, Howard is one of the world’s leading experts on bonds.  If a bond was designed or thought of Howard either had a hand in designing the math behind it or had already thought of the concept.

Howard’s blogging will give the astute investor a clarity rarely seen in financial markets.  Good luck Howard.

Recent polls show more than 50% of the public is in favor of a public option for health insurance.  While horror stories abound over the military’s and senior’s public option, I can understand the sentiment.  Just make one call to your insurance company in an attempt to find what they may or may not cover and after a dozen voice mail questions you end up with someone, if they can speak understandable English, totally clueless. 

Polls also show Obama maintaining his overall popularity at around a steady 58%.  The numbers are not overwhelming, but the public is willing to give the man a chance.  On individual issues he polls even higher.  Afghanistan remains his one weak spot.  During this period the Republicans, fishing for anyone or any issue to campaign on, continue to slip deeper in the hole.  Al Franken’s Amendment supporting prosecution for rape even in war zones working as private contractors, found 30 negative votes in the Senate.  At least you would think these idiots would be smart enough just not to vote. After all, rape is impossible – right?  A woman can run faster with her skirt up than a man with his pants down.  Oh well, bad joke – but what were these idiots thinking.

http://www.republicansforrape.org/legislators//

This one is a little over the top but funny just the same.

http://www.youtube.com/watch?v=e_IAN081P8I

The point here is for the first time since Reagan the Republicans have been unable to lock step a message and galvanize the public.  Are the Republicans, like GM, disorganized and out of touch from within?  Or has the left learned to fight back playing a better game.  The Reagan Revolution swung the country towards conservative issues causing the Democrats to swing to a pragmatic middle leaving the Republicans chasing off the track issues like abortion (RU486 makes the argument almost mute), religious morality (the younger generation as always occurs on the Long Wave upswing allows technology to define a new morality),  a strong military (under Clinton and now Obama the military is more directed with less fraud than under the Republicans) and a balanced budget (ha Republicans did not do well in that area).

As the party continues to fragment the issues will become more and more out of touch with America.  The least competent guy is always left to turn out the light on a failing organization.  No, I do not think the Republican Party will go out of existence, but it will take time and a revolution from within to set the Republicans back on track.  Such a revolution can only come from younger generation and will require time.

Some time back I wrote about the need for financial firewalls.  The current sub prime mess cascaded down because of interlocking financial instruments that affected the global financial system.  Using the theory of “too big to fail” governments around the world bailed out banks and other financial institutions. The bail out was absolutely necessary to insure Joe six pack could access his ATM.  While I am not a big fan of Paul Volker he is now one of the lone voices for separating commercial banking from investment banking.  Volker is absolutely right.

http://www.nytimes.com/2009/10/21/business/21volcker.html?_r=1&hp

However, he does not go far enough.  The sub prime mess hit everyone because most financial institutions assumptions were based on a 3% interest return above inflation.  Excess liquidity coupled with the integration of all financial instruments broke the paradigm causing first asset inflation and later asset collapse.  What was different about the current financial panic is how interlocked every financial institution became.  CALPERS ( the California Employee Pension Fund ) and credit unions were both thrown into the same mixing bowl of boutique financial instruments. 

Developing a true financial firewall requires greater granularity of regulation and must go further than Volker’s suggestions.  There are many sub sets of the financial world and financial super stores that commingle assets can neither accurately measure the needs nor manage what at times becomes compounding risk. Even when financial institutions attempt to offer a full range of financial services they fail.  Bank of America attempted to run Charles Schwab and failed miserably.  Morgan Stanley cannot compete with a Scott Trade.  Too often existing product lines create conflicts of interest in offering new products to the public.  Holding companies are just another way to mess with management leading to inefficiencies and greater risk.

Typically one thinks about the upgrade of the Long Wave being liberal and the Down Grade being conservative politically.  The shift to the Obama administration is certainly a liberal approach over the Reagan and Bush Administrations.  As pragmatic as the Obama Administration is, especially lagging in implementing liberal agenda like Gays in the Military and other hot button topics, the liberal bias of our times will carry the liberal hot button issues forward.  If we are to get a handle on these issues we best understand the thinking and actions behind the formation of a liberal campaign.  No place is the distinction clearer in the two battles over Abortion and the Death Penalty. 

Abortion foes have made a great deal of progress in making abortion inaccessible to many women, sadly in most cases to the woman who can least afford the burden of an unwanted child.  Abortion tactics have clogged the courts with battles on each side with political intimidation and the illegal blocking of abortion clinics.  In some cases the battle has extended to encouraging and making heroes of those that commit criminal acts of vandalism, extortion and even murder. 

The result of the battle over abortion, even after packing the Supreme Court, has been nothing.  Roe vs. Wade is still the law of the land and technology has made an end run around abortion foes with the advent of RU 486 and Plan B. 

On the death penalty side the opponents have used the courts and at times peaceful demonstrations.  Instead of focusing on all executions being bad the death penalty opponents have staked out a reasonable and rational position of making damn sure the person committed the crime.  Technology has come to the aid of the death penalty opponents in the form of DNA where a significant number of people on death row have been cleared and released.  In the process of insuring that not one innocent person is executed, the death penalty opponents have raised the cost of executing an inmate by forcing examination by the courts of every piece of evidence.

In Texas there is an investigation the governor is attempting to squash into the execution of what appears to be an innocent man.  After seeing his children burn up in a fire the man was accused and convicted of setting the fire using at best flimsy evidence.  A recreation of the scene indicates the fire was not set.  What could be more insulting – first losing your children – then being falsely accused primarily due to socio economic conditions and then executed by the state for something you did not do?  The ultimate irony is those in favor of the death penalty are just the people who do not believe in the effectiveness of government.

Understanding what is happening in America today and the direction social trends are headed plays directly into how two different forces used dramatically different approaches to accomplish their goals.  The anti abortion group depended on fear and intimidation to bring about change.  Facts were skewed – hell tortured – and freedoms were butchered in the process.  Instead of a rational and natural medium the anti abortion crowd has pretty much lost its battle. 

The death penalty foes used the system for change.  They gathered facts and statistics to make a rational case.  Sometimes the facts were hyped and distorted as in every campaign – but in most cases the facts were true.  Today states are moving away from the death penalty both as costly and in fear of wrongful death.  No the death penalty foes have not won their case but they are moving in the correct direction.  With the Long Wave going in their favor and the clear documentation of a wrongful death they have a better chance of succeeding.

I do think this marks the difference in philosophy between the past Bush Administration where too often decisions were made based in dogma and the Obama Administration where Obama spends a great deal of time examining a situation before taking action.  The time spend in examination is not a lack of macho determination on the part of Obama.  It is recognition sometimes none of the available options are acceptable and new solutions have to be tried.

10.20.09 – Bullish – The S&P created a small upside gap yesterday that has since been filled.  Momentum is positive with increasing volatility.  The S&P index accompanied by a large number of stocks remains in an acceleration phase.  Prices should not only continue to trend higher they should accelerate a bit with increased range. 

First he picks Palin – well she was probably forced on him bringing into question how much his own man McCain really is.

The he votes in favor of rape.  Now that is probably a little but skewed, but you would think that anyone in public office would not open the door of opposition on such an issue.

http://www.republicansforrape.org/legislators/

Now McCain introduces a bill against net neutrality guaranteeing if it passed major legal battles in the courts and probably an increased government to manage the issue.  Thank God the FCC has its hat on correctly.

http://rawstory.com/2009/10/mccain-net-neutrality/

Tell me again how leadership does not matter.

In my 1999 energy position paper I concluded nuclear power would play a major role in the next Long Wave.  At the time nuclear power was very unpopular – particularly in the US.  Today things are shifting rapidly with Obama pro nuclear power.

http://www.newsweek.com/id/219233

Here is an interesting comment on the UAE deal.  Not that I am comfortable with the idea of proliferating anything nuclear in the Middle East.  However, the concept of central control of processing and distributing nuclear fuel is something I saw as inevitable.  Just as state and national governments set standards, world governmental organizations are essential in setting standards.  Nuclear power is a gateway into the establishment of global standards.  I safer world is dependant on the tight control and reprocessing of nuclear materials.  Setting standards for plant operation and equipment is also critical.

http://www.msnbc.msn.com/id/33448863/ns/technology_and_science-tech_and_gadgets/

The control of nuclear power is not the only place where standards are important.  It may seem trivial to define a common standard for cell phone charging devices.  However, the definition of standards in cooperation with industry is a critical and important function of government.  The drive both under Teddy Roosevelt and FDR for national standards came from industry not the public.  The need for weights and measurement standards (something Reagan set back 20 years by killing the metric system conversion) is an important part of government function.  We will know the process of the US joining the world community has accelerated when the Obama Administration reinstates the metric conversion.

Matt,

I am glad you treat your relationship with weights and measurements the way most treat their relationship with their personal God. J

Seriously there is a divide here important to the development of the US and a US Renaissance.  Reagan started to trend of nationalism leading mostly to isolationism.  Rolling back the metric conversion was symbolic of a greater trend of the Reagan era Buy American. Coulter and the extreme right reflected this isolationist thinking with their condemnation of Justice Kennedy when he used the internet to research how Europe handled certain legal issues surrounding technology. 

The world is not a place where the US can live in isolation.  Even in global domination the US needs cooperation.  Looking over the fence and adopting better ideas and embracing common standards is an important aspect of globalization.  When the US again embraces metric system integration will be an important sign post of cooperation.  Of course it might come at the next peak as it did under Jimmy Carter and then be over turned immediately by the next administration further pushing the US away from the global community.

E. V. Baranov - CEO

The Kondratyev Theory Letter ( The Letter )

http://www.kondratyev.com/

I have been under weather and not made a recent update and now I am off for a few days.  It seems world markets have also caught the flu.  For the record I cleared out all my short term positions this week.

The S&P gapped down on Monday.  Today’s rally (on news) did not fill the gap.  How the S&P behaves in the next couple of weeks will determine if this gap is the start of a reversal or the end of the short term trend.  Clearly, the low end of this week’s range will be a place to install stops.

Time is right.  Things have run into October as I predicted and while the S&P has not reached my 1150 target it has come closer than most people expected back in April.  Momentum is deteriorating and there are enough external factors to be a concern. Acceleration has turned negative.  As the facts roll out on Afghanistan and the cost health care is realized there is ammunition for the market to correct.  The question remains will the S&P and other markets march sideways building a base for the next advance or will there be fair washout of prices.  In some ways the issue is immaterial as the next turn sometime early 2010 will be the best buying opportunity – well perhaps ever.

As well as being under the weather a bit I have, like George Bush with stem cells, been thinking and reading a great deal about Afghanistan, perhaps a contributing factor in my less than perfect health.

Ok, maybe the best I can do is to present some facts that are probably known by most of you, but no less powerful. 

1.  The US has been in Afghanistan longer than the Soviets.  The Soviet occupation demoralized the Soviet Army and drained its treasury.

2.  It costs a million dollars to put a soldier in Afghanistan.  This sounds high and I assume includes support costs.

3.  US and NATO troops out number the Taliban 20 to 1.

4.  There are some natural gas reserves in Northern Afghanistan but according to the CIA Fact Book negligible oil.  The location of Afghanistan allows for the development of gas and oil pipelines to India. 

5.  Hamid Karzai used to be employed by UNOCAL and while that does not mean much it does raise the possibility of a conflict of interest.

6.  Casualties are rising and are at the highest level of the eight year war.

7.  Vietnam escalated with increasing causalities. 

8.  Eight and a half years later bin Laden is still on the loose.  The US Calvary was unable to capture Poncho Via after great expense and the loss of life.

9.  The US has killed the number two guy in al Qaeda a number of times and the bombings continue.

10.  Since 911 terrorist acts globally have continued to escalate.  Like the war on Drugs the more the US spends the worse the results.

11.  The US military budget is greater than the combined military budgets of the rest of the world.

12.  Hitting someone makes them want to hit you.  Killing someone makes their family want to kill you.

I am not sure these are all or even some of the factors Obama is considering in his analysis of the failed US / Afghan War.  However, they should be.  The only real success the US had in Afghanistan was when it followed the war policies of Genghis Khan.  The initial organization of the Northern Alliance by the CIA with US air support was extremely effective in ridding Afghanistan of the Taliban.  Occupation and nation building as seen in Iraq does not work.  Iraq only turned around when the US had the brilliant idea of paying the locals to turn in the bad guys.  Genghis Khan captured an enemy and then used the enemy’s army to forge ahead against the next larger enemy.  He did not suffer from insurgency from the edges simply because he drafted every swinging dick and many of the women as well.  The people waging war and killing Americans in Afghanistan are young men.  They are often motivated because they lost a relative.

There are only two solutions to the problem.  Both were learned by Genghis Khan and proved by history to be extreme successful.  The first approach is what the CIA adopted in the initial pass through Afghanistan.  Use the locals to fight for common goals.  The second is annihilation.  Genghis approached a village and raised a white tent.  If the village surrendered the young men joined Genghis’ army and the woman and children survived.  If the village would not surrender then he raised the red tent.  On the red tent the woman and children were spared, but the men of fighting age were killed – one assumes for stupidity.  Finally he would raise the black tent and attack killing everyone in the village burning it to the ground.  

The “civilized” world does not fight wars this way any longer.  They got their fill after WW II.  The Chin also became “civilized” and fell to a much smaller and primitively armed force.  However, the enemies of the US do fight by Genghis’ rules with a step more brutal of strapping suicide bombs on women and children.  The moral authority in a war is to win.  Japan and Europe ended centuries of brutal warfare only when faced with complete annihilation.  China and the Soviets ended Communism when half their populations were dead, staving or glowing in the dark.  The Christian Science Monitor had a recent article about the safety of Pakistan from the Taliban, however the author ignores the history of small asymmetrical dedicated forces bringing down empires. A side note in the Genghis comparison was his coercion of a Chin engineer to his side bringing both the technology of the Catapult and the blueprints of the Chin defenses.  Abdul Qadeer Khan, the engineer of Pakistan’s bomb, represents a similar security breech where technology like the use of planes on 9/11 has the potential of working against a superior force.

The only solution I see for the US in Afghanistan is to withdraw the majority of US and NATO (What is NATO doing there anyway – Afghanistan is not North America) troops and revert back to CIA operations of organization of locals with some air support to keep the Taliban on the run.  A similar approach worked in Latin America during the Cold War where other than Cuba the soviets were unable to penetrate the region.  The protection of Pakistan lies in organizing and motivating those with land and life at stake to protect what is at best an unstable government.  Short of bringing the full force of the US military in a scorched earth policy with wholesale destruction of all, the only effective – and cost effective – approach in the region is incremental and covert.

The decision made by Obama in the coming weeks is probably the most important of his administration.  Further commitment of the US to the current path is futile and will cost the US in GDP making the US economy less competitive in the world, further weakening the Dollar, adding an on going cost to the deficit and weakening the US military and its prestige around the world.  A further continuation or escalation of violence coupled with more foreign aid to Pakistan further weakens what is a corrupt and unstable government.  It will be a miracle for Obama to stand down and revert to covert activity, but it is the only practical approach.  Governments of Kabul and Islamabad cannot operate in their own best interests as a result of internal corruption.  Pouring money and arms like gasoline on a fire only inflames what an unstable situation making it more unstable, more violent and more corrupt.

Eric,

There is an excellent discussion about nuclear waste disposal following the article by the WSJ regarding Yucca Mt.  The article was written in February 2009, but comments are still being posted.

http://tinyurl.com/ybxl874

It appears in my absence the market has done very little.  However, such lack of change is only on the surface.  Internally the market has deteriorated significantly, yet the indexes remain on the horns of a dilemma.  While indexes are deteriorating internally, a number of high profile stocks remain strong.  Such conditions favor a broad ranging market over a decline.

Gaps:  Two weeks ago the S&P gapped down starting the formation of a short term reversal.  Monday the S&P gapped strongly higher.  The key question here is will the S&P continue its run to new highs or die in breach?  Gaps have not yet turned bearish.

Momentum:  The most recent decline turned short term momentum negative.  Already Long Term momentum is stretched to near the over bought channel with the indicator turning down.  Failure of momentum to follow prices to new highs sets up a short term reversal.

Summary: The S&P is in a bit of a never land – some good some bad.  While the S&P has entered a short term acceleration window the preponderance of indicators suggest any move to new highs to be limited in extent and duration. 

Best guess – the S&P moves to new highs forming a bull trap.  Once the trap is sprung over the next three weeks expect a significant decline to take place.

Here is an interesting presentation.

http://www.msnbc.msn.com/id/33498869/ns/us_news-the_stimulus_tracker#/awarded/all/us/all/

Of the $700+ billion in Obama’s Stimulus Package only $34.2 billion has been awarded.  Such a slow implementation suggests either caution or fiscal responsibility.  More important is a look under the covers.  A large portion of the awarded funds have been directed towards hybrid and battery development.  This gives an insight into the administration’s preferences towards energy independence in shifting the basis of transportation.  Electric / hybrid cars are an important first step in the development of an automated individualized transportation system. 

Over the years I have written a lot of negative things on Gold.  One theme in particular is my feelings the Gold market is manipulated. 

http://rawstory.com/2009/11/canadian-gold-mining-group-declares-global-production-terminal-decline/

It is always fun to read such stories of there not being enough or something – oil, corn, Dot Com companies and now Gold.  In the late 1960s when trading commodities I sat in brokerage houses watching the tape and talking to Silver bulls - older people who had invested their life savings in Silver.  Every day I heard stories of the shortage of Silver and how production could not keep up with demand.  And every week Silver prices declined stripping these pensioners of their life savings.

Now there is not enough Gold.  Central banks still hoard Gold – but we are running out.  Ok – I believe.  I also recognize a major top in the making when it occurs.  There are issues of timing, but the mood is being set.

Here is an interesting article that was pretty much buried in the news.

http://rawstory.com/2009/11/gen-wesley-clark-calls-exit-afghanistan/

Note the couching of the article in giving Clark’s credentials.  No mention that Clark was the Commander in the last war the US won. No title of the former Supreme Commander of NATO.  There is something very wrong here with Afghanistan and the Administration when there is little credibility given to those who have an impressive track record of accomplishment.  Clark is right – it is appearing with the re-coronation of Karzai and the desire of the military to waste more grunts that Afghanistan like Vietnam is not about winning and instead about blood money.

For some time I have painted a dual scenario with Global Warming being a fraud on the level of Charles Mackay’s popular delusions and the need for coordinated global policy on the environment.  These two may seem in conflict; however, understanding both helps with projecting future events.

http://www.msnbc.msn.com/id/34035624/ns/world_news-washington_post/

Here is a great article on the destruction in Indonesia.  The article discusses the problem of forest destruction vs. economics of resources.  While I will disagree with the article about the dangers of the burning peat releasing carbon into the atmosphere, I will agree with the article about the destruction of forests that act as the world’s lungs.  The danger of emerging caches of natural resources is the shortsighted cost of resource exploitation.  Instead of carbon credits the ongoing cost of exploiting resources should include the total cost.  Instead of Oil companies, that used to receive a depletion allowance, a more appropriate policy is banking the true cost against clean up and development of new resources.  While in concept such a policy sounds valid, implementation is tricky.  Like Social Security how does a government bank assets that can later be tapped?

The article also conveniently fails to mention where the demand for Palm Oil comes from.  In their lust for displacing petroleum the EU has become a consumer of Palm Oil.  Like the Ethanol fraud in the US that at one point challenged food stocks and still dangerously diverts large amounts of highway funds to development and production, the EU, encouraged by short sighted environmentalists, has a preference for Palm Oil as a bio fuel.  With a large installed base of diesel engines Palm Oil easily replaces petroleum based fuels with the attendant destruction half way around the world.

So far Ethanol, Palm Oil and Oil Shale in Canada have created greater displacement, environmental destruction and higher fuel costs than the failed petroleum paradigm the environmentalists so desperately want to dismantle.  The law of unintended consequences is at work and as Globalization continues to expand even small adjustments in Industrial economies will continue to have a profound impact on peripheral areas  

Ok, there are many things wrong with health care and health insurance in the US.  Certainly, the health insurance companies need a serious ass kicking and then some better global rules under which to operate. The current hodgepodge of conflicting state regulations often exploits the consumer and makes fair claims difficult.  Computerized health care records and the reorganization of medical facilities as well as the delivery method of treatment are all need reorganization.  But some how I do not think the government has yet found a solution.  Sometimes a picture is all it takes to convey what went wrong.

http://msnbcmedia1.msn.com/j/MSNBC/Components/Photo/_new/g-091121-cvr-hlth-5p.grid-5x2.jpg

Now maybe it is just me, but somehow a bill almost two feet thick only looks like an attorney’s retirement fund.