Gene Inger's Daily Briefing for 8/1/6

Gene Inger's Daily Briefing. . . . for Tuesday, August 1, 2006: Good evening; Senior Averages were 'rocky' . . with most assessments focused persistently on the usual suspects: whether or not the Fed will raise rates, how high Oil prices might go, or the frequent seasonal selling squalls during the month of August. Mostly they tend to dismiss the Middle East war, as something that will get resolved within a week and is being ignored by Wall Street. They generally avoid 'vision' or 'in-depth' analysis. Well, we don't dispute much of that, except for the idea of any significant further rate rise by the Fed next week, and the course of the 'war'. As to the former, suspect that a nominal increase accompanied by indications of 'concern' about economic slowing at minimum, and at best no increase at all, in which case (with caveat) rally extension would likely be mounted, sustainable or not. We suspect it would be troubled at best. With respect to the 'war', we're continuing to think it's a very big deal; and that what's turned-into a humanitarian public relations disaster (additional remarks). We add that last point because though it behooves pro-Hezballah protagonists and a seemingly-mild-mannered female editor at Beirut's Lebanon Star (heard her more than once, so no doubt about where her bias is; not for a democratic Lebanon) to sensationalize all collateral damage in a vociferous way, by never addressing core issues of UN and Lebaneses failure to police their territory to reign-in rampaging terrorists, irrespective of nevertheless horrific experiences locals (who were warned to depart the area) do suffer. They of course recall the previous Israeli occupation, but curiously tend not to mention (why do they gloss it over?) the Syrian invasion or the 'root' terrorist cause. Tonight, Syria increased the 'readiness order' to their troops, already on alert since the conflict began. But Israel has no choice other than to interdict military supplies as they are headed to restock the Hezballah terrorist surrogate Syrian & Iranian army. It is an impossible situation, and we could detect that in the 'nervous quiver' from Sec'y. Rice today, as she spoke prior to leaving Israel for Washington. It is what she failed to say that is worrisome; such as the resiliency (or lack) of the Lebanese government in this crisis. If they collapse, will there be an exodus of the majority of non-Hezballah supporters and Christians from the country, to Europe and the U.S or Canada? Yes, we suspect. (That's probably why they were encouraged to depart while it was easy.) In such an event, Syria would probably try to move troops towards the coast, and one more time in the sad history of 'the Lebanon', we'd see their suffering people discover who their real enemy is, and it isn't the Jewish State to the South. It's Syria and Iran. Will Wall Street continue to shrug their shoulders as if to say 'not our problem'? Doubt it seriously, as a widening-war that U.S. and UN efforts can't ameliorate (resonates). The people of Israel want to be left alone; would the Arabs prefer it if they'd suffered a greater humanitarian loss? Would the world's press? You answer that; we won't. It is pathetic to see the lack of depth in most of the world about this situation; though at least Washington 'gets it', even if the pressure to dampen things down is increasing. I know why the Israeli people, including the liberal 'doves', are supportive of the current response: they fear fighting the same people again when armed with nuclear missiles as the current morass ought to denote in no uncertain way. Imagine the volume that's coming over the border, and then consider if chemical, nuclear (or radiological or if in the worst case bacteriological) weapons were fitted to those very rockets or missiles. Does it have to come to that before the world will preempt a disaster? Like we've said for years; this is essentially the 1930's with the world appeasing and turning away the challenges of 'our time'. What really will occur if a crazed leader of Iran 'reassesses' his country's nuclear plans after the battle going on now? He said they'll reevaluate; what does he mean? Might mean they'd go ahead and try to attack Israel or even the neighboring Islamic states now rather than later, since it becomes evident Europe is divided (well, not much, just scared as per usual it seems), and the United States is overwhelmed by its current foreign commitments. If so, would that be bullish for the markets? I don't think so; though the U.S. could be a relatively safe 'harbor' for parking money, though maybe they'll attack us too. And of course they'll rationalize or deny how they're arming the Hezbollah and Hamas in contravention of all laws; again trying to make the West appear to be the evil doers, while they continue plotting, and for that matter, try to advance their crusader cause. Where do we stand; and why are we not mobilized; 5 years after 9/11; borders are of course still relatively open, and infrastructure security improves in 'business as usual' procedural baby steps, while the wily enemy continues to conceivably plan attacks. It is fine to 'grasp' problems; but steady execution of effective strategies does matter. Daily action . . . suspects this week's market will try periodically to reverse back up, but not get too far ahead of this week's upcoming Employment Report or next week's Fed meeting, and then we'll see. But for now, we take a major departure from those who dismiss the importance of the international conflict to thus summarize our current posture, as noted below. If it all turns-out excellent; that's great, but we suspect this is (sad to say, deaths are minor if by a comparison to what has occurred via attacks on the U.S. or Europe, though that's not noted by even the American media obsessed in regard to 'Cana', which may not have been Israel's doing anyway -what's wrong with them; this is war after all- though all civilian suffering is lamentable; where were they when we got hit; oh, forgot that they were reporting denials that Moslems could have done it, or were cheering both in the Middle East, Brooklyn, or parts of New Jersey). In any event, here's a summary of how we feel about the big-picture situation now: "The U.S. is facing an unseen enemy that is filled with fervor that strikes with skill and stealth… It needs new methods, new structures, new ideas." That was from the 9-11 Commission’s Final Report. Though there is little doubt the leadership of the free world grasps the underpinnings of the challenge, plus true enemy natures or goals, there is an undercurrent of failure to mobilize international opinion to grasp not only the tragic consequences of intended or accidental humanitarian 'collateral' damage as it's called, but the way an opportunistic enemy deviously, opportunistically and pathetically, intentionally manipulates civilians (or forces them for that matter) to become targets for the other side (both in Lebanon and in Iraq), so that the aggressor can portray themselves as the victim. American reporters are finally comprehending it now, but belatedly, and the kowtowing of politicians to these events (tragic as they for sure are) tends to play right-into the hands of vile Islamic zealots and their backers. Quite frankly that means we are dealing with an enemy (as if we didn't know it or how far the tentacles of evil reach) that's not only intent on our free-world destruction, but manipulates their own populations, so as to garner support from the very people they have set-up as unwitting cannon-fodder to try to protect their inhuman rocket assaults against civilians in Israel, or kidnappings and IED murders against civilians in Iraq. At this point it's a war where the enemy is more clever at maniputing the press than the West is; so the West had better do so not only here, but aimed at MidEast audiences. (For instance where is the showing of that Moslem-made anti-Islamist film on TV, that exposes the lies, distortions and overall game-plan of the world's Islamic crusaders?) Washington finally does 'get it'. The problem is our leadership (and unfortunately we'll have to ask on either side of the Aisle) so far hasn't really been up-to-the-task of not only 'fighting', but explaining, to the world, in sufficiently motivating and statesmanlike ways why humanity must rise-up against the barbarians; or what happens if we don't. Our President sees the real issues. But we see how pained he is to address it. Is he out of his depth? Is any leader sufficiently competent to take on this enemy not just to 'hold the line', but to win? And are they prepared to do that before they strangle most of Europe into (what is already) a policy of appeasement that is a definitely recipe for failure? These are questions we pose to everyone; and believe others should pose to their leaders and peoples, in hopes that (maybe via grassroots motivation) something will be done to stimulate guts to do what has to be done, before it becomes nuclear. This is an argument for peace (but not at any cost); and not for war. It's any argument that continuing to sit-on 'flare-ups' but not address the core issues beyond lip-service, is a prescription for more horror and killing, initiated by the enemy, and blamed on the free world. Yes, we sort-of took the fight to the enemy after 9/11, but via a detour in a sense (Iraq, where this is more of a civil war than a terrorist confrontation), that left all the weapons of international Islamic terrorism still functioning, including Hezballah, of course Hamas, and not to be overlooked, al Qaeda and misc. henchmen worldwide. I argue that these efforts (even if the UN is successful) to put out fires prolong not only a resolution of the problem, but buy time for the theocrats to advance their agenda in much of the world; not to mention being a diversion for their nuclear weapon program or other WMD developments (so far they have not used chemical warheads on rocket attacks, but who is to say they won't; and why has no one had the courage to say the response that will occur to them, in-event they do… before they do, or consider it, not afterwards). This is an example of what I mean: not preemptive war necessarily (but it is not to be ruled-out if essential), but preemptive statesmanship, making clear (like we did to a Fidel Castro or for that matter the old Soviet Union on occasion) what will happen to them if they do certain things. This is where we question the competency of how this is being fought. The opposition either here or in Great Britain says 'stuff', but never clearly brings-forth details as to a more effective regimen, or how they would do it, if they were in power. We are in this together, so if any American or Brit (or Israeli) really knows how to resolve it, let him or her come forth and say so, with gusto. And we don't just mean say bomb 'em all. It is a stupid notion of simplification that can't be implemented when even most Islamic countries have a majority of populations who would throw-out the barbarians if they in any way were empowered to do so. And that's possibly one avenue worth exploring. Just food for thought. But while so many perceive the stock market as 'not caring' for what goes on overseas (absolute stupidity to believe that; especially given risks likely in the next-phase), it certainly will care, if this remains an expensive protracted tough historically seminal situation that is (as we first posed after the Cole and the embassy bombings, and even the 1st World Trade Center attack) part of the 3rd World War. It's not a war that can be effectively confronted, until wartime efforts are generated with an intention of winning the war, not just repelling or responding to individual attacks. Bottom-line: today’s increasingly catastrophic situation compares to when Winston Churchill warned British legislators of the threat posed by Nazi-Germany. But with no quick-fix solution, rather than face-up to reality, politicians buried their heads ostrich-like in the sand hoping Nazism would go away. It didn't. Neither is Islamic extremism. That means, across party lines; we better put smart heads together and deal with this with vision and creativity, not merely respond to various individual actions. Note that aging Warren Christopher who shuttled back-and-forth stoically opined in recent days when asked: this is 'not a situation deserving of unconditional ceasefire'. So if it's one to resolve, then resolve it we better, as for the moment the world turns.. to the UN. MarketCast (intraday audio-email) comments also realize the foregoing enigma that bedevils the markets can go either way, as can the world situation. However, for now we got our desired early week defensiveness, and markets held-together extremely well actually, which may set-in-motion snapbacks, particularly in stocks with a larger than typical short-position, or with particular contributions to National Defense that for sure has nothing to do with typical response to economic reactions to the almost silly clarion calls about 'recession'. (That's because it's very Oil sensitive; isn't Bernanke's fault; and is actually occurring at about the right spot for a multiyear rate increase we forecast back in 2002 to exhaust itself; which means anyone reacting to it now is a bit after the fact, to say the least. And with tech stocks, that's likely the case too; not to say they can't ease back down if we do get the typical seasonal squalls as we may see, and delayed key products; but that was our plan for the 'Summer of Discontent', and encourages us if occurring absent related to [as ingerletter.com expands] more.) Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of major technology issues (as needed for assessment of general factors in techs overall, or as compelling developments may call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks merit further reflection. Most everything tonight via audio comments. ``` In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us less as we focus on the Middle East crisis and World War III avoidance. McClellan Oscillator finds NY 'Mac' currently around NY at +148; NASDAQ at +24. Issues continue including oil, terror; Iraq; Iran; Hamasistan, Korea, and Lebanon. On the weekend we noted reports that Hesballah's leader has traveled to Damascus for a 'war strategy' gathering with Assad and Iranian military leadership as ominous in a sense. The situation is increasingly 'open and overt' as regards their conspiracy for incitement and terror/Islamist ideology, that cannot be ignored by civilized peoples. It is logical that the twin-statements from Iran and Syria today reflect that bellicose style of politics. S&P futures are up about 50; Tuesday could be dip-up-down-up overall. Enjoy the evening, Gene Gene Inger, Publisher ~Gene Inger’s Daily Briefing™ (The Inger Letter daily analysis on www.ingerletter.com) ~Gene Inger’s MarketCast™ (Intraday audio updates emphasizing S&P futures and market action)