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[TTHQ Staff]

Excerpts from Gene Inger's Daily Briefing. . . . for Wednesday, September 6, 2006:

Clever politicking . . . . versus the arguments that 'terror war' debates aren't political at all, to an extent highlight this first post-Labor Day session. Aside the obvious news, on the financial front, that the mainstream financial press has or will highlight in detail, it is this probing on the geopolitical front that may be the least-notice most-important of all aspects of what confronts us in the weeks just ahead (more at ingerletter.com).

That is why tonight's text will address not only two stories that already bear-out what I have suggested, with respect to a stream of developments potentially starting from all kinds of areas after the holiday (though we disdain the idea that in wartime continued business-as-usual attitudes prevail, even though the rhetoric suggests a faster paced approach should be embraced), but several aspects 'behind the media scenes' that in my view are more telling than rhetoric, about what governments are doing, not saying so much about, in the wake of Iran's ignoring of the United Nation's nuclear deadline.

Besides the comments about 'surging' naval and air forces you'll see; do know that all the world is a little harrier. Whether it's the advance of the Taliban in Afghanistan (we have no idea how or why they can frequently gather in groups without being spotted by Predator drones and hence decimated, though some have been most recently) or the generally unreported attempted 'heat-seeking missile' firing against a helicopter in which Senator John McCain reportedly was riding (not knowing if the terrorists knew it at the time) in Georgia (the former Soviet Republic, not the south's old confederacy) or for that matter the reports of increased activity at the 'undisclosed location' about a hundred miles west of Washington, where a 'shadow Government' is likely operating, it is a climate that suggests a whole lot more going on than routinely being reported.

MarketCast (intraday audio-email) comments notes, that besides the geopolitics, it is important to note that does not alter the balance of our pattern expectation, going into the heart of September, as players returning from the holiday weekend on Tuesday were expected to big-up stocks and then have trouble with respect to really boosting matters over the September S&P 1320 level for instance, on any sustainable basis.

There are significant forces afoot; and more going on behind the scenes than media's reporting. Foremost among these 'events' are the forward surge of NATO or Europe's navies to the Eastern Mediterranean; far more than is needed to 'cover' UNIFIL force levels in Lebanon from Shiite, Syrian or other terrorist attack. In particular, dispatch of the French aircraft carrier, Charles de Gaulle, plus an Italian Carrier Battle Group as well as the USS Mt. Whitney, a sophisticated command and control ship, testifies to something afoot beyond supporting the relatively small UN deployment in Lebanon.

We suspect it relates to deterring (or if necessary responding to) an attack by Iran or Syria on anyone, despite the absolutely stupid (and meaningless) restrictions by the European 'allies' on Israeli aircraft load limits as they fly from the U.S. to Israel. When will the political forces in Europe realize that Islamists could care less about 'political correctness' or other appeasement efforts towards Moslems (like the hospital burkas in England that resemble body bags with slits for breathing; a concession to patients so ridiculous that an attending nurse or doctor can't tell who the patient is or even the sex of the patient, other than presuming that the patient in the bag is likely a female). If the Brits think they will mollify the Islamists, they'll be sadly disappointed we fear.

Here is basically what President George W. Bush said today. Normally we'd leave it to the media, but in this case it's significant enough to note, since without a draft, or a visible increase in preparations for strategic war, one has to wonder what's going on. We think it's quiet preparation (carrot rendered, not accepted, and sticks moving into places), and we believe the Navies of the free world are surging forward at this time; essentially saying 'via deployment' what is not being said after Teheran for the most part thumbed it's arrogance at the United Nations. We think the President in a sense is warning the Iranians. We're also concerned that the 'invitations to convert' to Islam in the last al Qaeda message, where a comment is added that Christians not electing to convert, will suffer the consequences, is a requisite offer so-called 'pious' Moslems must make to 'Infidels' before then are allowed to enslave or kill them. So we believe this was less a threat, and more of a warning, of potential impending attack. In which case we believe the evolution of a 'forward surge' of military forces may be a political issue in some minds, but enemy history suggests it is not simply a political strategy.

Do know, while generally unreported, that it's not just the Navy. U.S. Air Force FB111 bombers have been deployed to undisclosed locations in Southwest Asia, for a future participation in the 'war on terror'. This is a shift from another forward base, and isn't a location that can be disclosed, though we think we have an idea where they may at this time be deployed. If curious about possible Iranian threats against Gulf region oil facilities, look for increased 'float patrols' of U.S. or other free world submarines soon.

Today the President branded Iran's president as 'a tyrant' and compared leaders in Tehran to al-Qaeda terrorists who cannot be allowed to acquire nuclear weapons.

But, he said, Shiite extremists have done something Al-Qaeda only dreams of by taking over Iran in 1979, "subjugating its proud people to a regime of tyranny and using that nation's resources to fund the spread of terror and to pursue their radical agenda." (Text interpretation follows at ingerletter.com).

Footnote: for any who think the U.S. is 'disproportionate' in its quest for limiting crazy behavior by Iran (and by the way 'proportionality' is not something to fret excessively about in the terror wars with Islamism, as Israeli learned poignantly in Lebanon), we'd suggest considering this separate unrelated argument voiced by Teheran just today, as Iran's hard-line President Mahmoud Ahmadinejad called for a purge of liberal and secular teachers from the country's universities, urging students to return to 1980s-style radicalism (that should go over like an IPOD without iTUNES); the youth there are more interested in the West than their parents and certainly the loony mullahs; so speak about rebellion and radicalism; they view their leaders as the total nut cases).

"Today, students should shout at the president and ask why liberal and secular university lecturers are present in the universities," the official Islamic Republic News Agency quoted Ahmadinejad as saying during a meeting with a group of students. (Again more about this and interpretation is provided.)

Tuesday's comments seemed to follow a campaign promise by Ahmadinejad to develop a lots more Islamic-oriented country. Since taking office last August, he has also replaced pragmatic veterans in the government with former military commanders and inexperienced religious hard-liners. That's just as bad as having leaders in the West with no familiarity with confronting evil and preparing for events that aren't in the 'playbook' of presumed enemies, or underestimating the enemy once a war starts.

Ahmadinejad's aim appears to be installing a new generation of rulers who will revive fundamentalist goals pursued in the 1980s under the late Ayatollah Ruhollah Khomeini, radical father (Chief Crazy) of the 1979 Islamic revolution in Iran, and who permitted the taking of American Embassy hostages, at of course the worst time for then-President Jimmy Carter. Shortly after the revolution, Iran fired hundreds of liberal and leftist university teachers and expelled numerous students. This is a 'here we go again'.
Daily action . . . recalls that these too-and-fro seasonal characteristics, while neither black nor white but more a grayish shade, for the most part are inline with forecasts, as we have made for the weeks just past, and the challenges which are approaching.

As to the President's remarks today, echoing last week's; we don't disagree. But we'd be less than candid if we didn't say we're strained at the credulity of telling us how so very serious this is, but not having the 'draft' or mobilization or Manhattan Project sort of defense budget efforts that we would have had during World War II. We spend that is for sure; but we're not getting the 'bang for the buck' after 5 years of this we think.
One passage in particular today reveals a conundrum. The Prez says: the security of the civilized world 'depends on victory in the war on terror, and that success depends on victory in Iraq'. Why? Maybe now; not originally, and if so then why not do what it takes to win; or conversely don't make such broad statements if unprepared thusly to do that. Here's the question: Does anybody believe this? Sure; some do. Some will not. For us we think that (as opined a couple years back) that Iran is fighting Iraq to the last American, and we didn't factor-in the obvious sectarian conflict that underlay Saddam's grievous deeds, but also a thousand years of conflict between Islam sects made that evident to all historians and students of regional politics. If you do entirely accept what the Prez said, then ask the President why he hasn't reactivated the draft, printed war bonds, doubled military budgets, modernized the armamentarium at a feverish pace (such as with lasers), and strenuously rallied allies to the cause? Part of the answer may be that we are doing that, but it took time to refine the technology to the extents necessary to move away from old-fashion chemical-based lasers to the new solid-state lasers (with or without electrical projection) such as Ionatron or QPC are working on (differing products within a significantly large emerging new 'space').

If, as he said, the war in Iraq is the front line in "the decisive ideological struggle of the 21st century"; if our foes there are "successors to Fascists, Nazis, Communists"; if victory is "as important" as it was in Omaha Beach and Guadalcanal—then those are just some of the steps that a committed president would feel justified in demanding. If so we don't disagree, but Churchill or Roosevelt or Eisenhower would move heaven and earth to do it all faster, we'd suspect. Where is the drive and energy not just fear and concern. We think the answer is partially funding, plus partially sticking to a belief that irregular warfare most primarily be fought unconventionally, which is why refining technology is very important to these efforts. Increasingly, refinements are maturing.

If, as he said, 'terrorism takes hold in hotbeds of stagnation and despair, then you must also ask the president why he hasn't requested tens or hundreds of billions of dollars for aid and investment in the Middle East to promote hope and livelihoods'. In this area we do have a problem; because most of the 9/11 attackers weren't dirt poor or impoverished, and were not in despair, but dedicated zealots. So he's right about it having comparison with Fascists, but the Fascist leaders aren't mere cannon fodder.

In a sense we agree with the President; but he hasn't done enough we'd say, nor has the citizenry been enlightened about the encouragement for him to do so; thus even Democrats aren't yet willing to make commitments (where's the outrage and 'sense of Congress'). And that's because, while the war on terror is important; keeping Iraq from disintegrating is important; in the grander matrix, politics is not that important we suspect. Osama Bin Laden is not Hitler or Stalin; but is an inspiration to misguided Islamic insurgents, murderers and ideologues, as well as poor innocents blackmailed and cajoled into doing their dastardly deeds. So Baghdad is not Berlin. Al-Qaeda and its imitators don't have the economic resources, military power, or vast nationalist bases that Nazi Germany or the Soviet Union had. So the U.S. must employ just that.

Enemies have diversity among nations, and 'cells' everywhere. They are dangerous, to a great extent, and thus dismissing or minimizing the threat is a great folly. So, the speech gets people buzzing with cognitive dissonances. Slightly exaggerated history and analogies (which might have been obvious or ingrating, to World War II veterans in the audience; hence their lukewarm response) were present, as well as the glaring mismatch between the President's depiction of the threat and paltry resources that at this point he's mustered to fight it (publicly visible), if the threat is of that magnitude.

There is danger, to be sure. Bush isn't mustering all the resources to deal with them, mainly because we do not have excess resources. We need assistance from players on the international stage who have great interest in preventing Iraq from collapsing or bigger regional war from erupting. How will President Bush rally assistance, while he makes statements such as; "We will take the side of democrats and reformers throughout the Middle East." What democrats and reformers? To leaders of Saudi Arabia, Egypt, Pakistan (which just gave safe-haven to the terrorists), or for others (outside of Jordan and even Lebanon), that sounds like we would take the side of people who want to overthrow their regime at home (mostly monarchs or theocrats, benevolent or otherwise) who'd be 'at risk'. Of course that's part of the dilemma, for which there's no easy answer, and why history is filled with Western 'expeditionary forces' ventures that were unsuccessful there. It's a miracle that Israel has survived in that neighborhood, and the bigger miracle for the U.S. is that (as long suspected) massive oil has now been found in the Gulf of Mexico at 15,000 foot depths (that actually has nothing to do with current but future oil prices, and should have nothing to do with our pro-Israeli policies and support for those few actually progressive regimes in the Middle East and Gulf region..the other Gulf).

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.

The Air Force selected a number of companies, including military contracting titans Lockheed Martin Corp. and General Dynamics Corp., and a university research institute to participate in a $1.9 billion deal to support the service's weapon systems.

In addition to the University of Dayton Research Institute in Ohio, Lockheed Martin and General Dynamics' Anteon unit, other contractors included: CACI International Inc., MTC Technologies Inc., and DRS Technologies Inc. Not necessarily related of course, but note that Ionatron has teaming relationships announced with a couple.

Separately; this next story could relate to QPC Lasers (QPCI), which has working secret Directed Energy Weapons relationships with DARPA, the Missile Defense Agency, and U.S. Army:

Northrop Grumman (NOC), moving quickly to consolidate its recent achievements in solid-state lasers, has begun constructing a dedicated facility for system integration work and low-rate production of high-energy lasers for military weapon systems

The 11,000 sq. ft. Directed Energy Production Facility at the Space Technology sector's Space Park campus has been specifically designed for high-energy lasers and weapon system applications. The first application will be the Joint High-Power Solid-State Laser (JHPSSL) Phase 3 program, where a laser power of 100 kW will be demonstrated. Other lasers and weapon systems (more details at ingerletter.com).
Both stories are further affirmation of the expectation of military developments and a series of possibilities believed likely to start flowing after the dormant late Summer. It cannot be confirmed who the suppliers are to any such structured arrangements with prime contractors, though we have our ideas on this front. Such will be announced, if permitted by DoD, by the contractors normally, unless sub-contractors have obtained permission to do so on their own (from the prime platform integrators or DoD or both).
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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' stabilized-to-firmer, at +156; NASDAQ at +46.

Issues continue including oil, terror; Iraq; Iran; Hamasistan, Korea, and 'Florence'. As to the situation in Iraq; things remain fluid. But needs for advanced weaponry to protect secured civilized areas will remain as important, or certainly in future combat engagements elsewhere. Further, advanced weaponry to eviscerate vermin without mushroom clouds, sparing harm to the majorities of people (innocents) are necessary for civilization and for the military's armamentarium. We are focused on this area now and in the future. That's partially as 'advanced defense' isn't so sensitive to consumer economics or domestic recession fears as a forecast 'Summer of Discontent' evolves. The key NBC News story about Israel's 'Trophy' interception system is 'case in point'.

For most stocks in such seasonals, it usually isn't (reserved remark). Nevertheless, a better overall tone last week was our forecast idea, as we have seen. It's post-holiday sustainability was in doubt, but it may put a better 'face' on the market for subsequent behavior by virtue of the previously forecast rally and expected brief extensions after the holiday. Note S&P futures are off 150 in mid-evening activity. Wednesday, while dubious, may be a dip-up-dip-up-fade kind of session, conceivably. Mostly defensive.

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)