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[TTHQ Staff]

Dr. Joe Duarte's Market I.Q.
Iraq and Afghanistan: The NewRealities
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The U.S.futures were lower in early trading. Today's Economic Calendar: 8:30a.m. Nov NY Fed Manufacturing Index: Expected:-27. Previous: -24.6. 9:15a.m. Sep Industrial Production: Expected: +0.4%.Previous: -2.8%. 9:15a.m. Sep Capacity Utilization: Expected: 76.7.Previous: 76.4. News For Thought Clinton for Secretary of State gathers steam. Accordingto The New York Times, the Obama camp is now vetting the finances andactivities of former President Clinton, looking for conflicts ofinterest that would have to change in order to make Mrs. Clinton anacceptable candidate for Secretary of State. The Times reported: "The examination of the former president suggestshow seriously Mr. Obama is considering bringing his onetime rival forthe Democratic presidential nomination into his cabinet." G-20 meeting gets no respect. Although worldleaders put forth a series of proposals, the financial markets were notimpressed and moderate selling continued overnight. Obama and McCain to meet. With the potential forsome kind of reconciliation, and thus political gains, both men havelots to consider before they meet. According to The Wall Street Journal: "Mr. Obama's pledge to movebeyond the partisan bickering requires Republican partners. Sen. McCainwould be a potent symbol -- and one with a long history of working withDemocrats on key issues on the president-elect's agenda: climatechange, energy efficiency and national service." But, as the Journaladds, even with a Democratic Congress on his side "the biggest items onhis agenda -- from universal health-insurance coverage to combatingglobal warming -- will take an environment of cooperative goodwill."

Iraqand Afghanistan: The New Realities

Almost a decade after the 9/11 attacks,the biggest reminder of those events on foreignshores, the U.S. occupation of Iraq could end as a agreement has beenreachedbetween the two governments. According to The New York Times: "Iraq’s cabinet on Sundayoverwhelmingly approved a proposed security agreement that calls for afull withdrawal of American forces from the country by the end of 2011.The cabinet’s decision brings a final date for the departure ofAmerican troops a significant step closer after more than five and ahalf years of war. What's left is for Iraq's parliament to sign off on the agreement,whihc is expected to pass with little trouble, although the potentialfor a Sunni sabotage of the pact remains, given that the Shiites andthe Kurds, the majorities, were the ones that overwhelmingly passed theagreement. There are some key timetables and other issues to consider. Accordingto The Times, the pact "puts new restrictions on American combatoperations in Iraq starting Jan. 1 and requires an American militarypullback from urban areas by June 30," while "Iraq also obtained asignificant degree of jurisdiction in some cases over serious crimescommitted by Americans who are off duty and not on bases." But there is a lot more to consider. According to Stratfor.com "theagreement will place U.S. forces under the authority of the Iraqigovernment and will require them to gain Baghdad’s permission toconduct raids on Iraqi homes." Also interesting is the fact that "U.S.forces will stop patrolling Iraqi towns by the middle of 2009. By theend of 2009, U.S. forces will withdraw from populated areas, and allU.S. bases will be turned over to Iraqi control." So what kind of a deal did the U.S. strike? It seems as if the U.S. hasnow left its troops in some kind of grey zone, occupying a country, butlimited in what it could do while being there, and acting more as asymbol than anything substantial. One of the major reasons for the war was to establish U.S. bases inIraq, and to have facilities and intelligence capabilities in theMiddle East from where it could launch attacks. All of that seems tohave been removed, while the troops are at the mercy of an agreementwith clear timelines. To be sure, there is a clause that lets eitherside change its mind within a year. Yet, the whole thing doesn't seemto add up. What seems to have happened is that the U.S., as many others in historyhave done, is to capitulate. They have not given up, per say, but theyhave decided that they've had enough. According to Stratfor, in an interesting bit of analysis, the events inAfghanistan over the weekend crystallize the situation, giving us aclearer picture of what happened in Iraq. Afghan President Hamid Karzai offered Taliban leader Mullah Omarprotection if Omar negotiated with him face to face. Omar has a $10million bounty on his head, and Karzai is in office because the U.S.and NATO back him. Yet Karzai defied his protection by offering tonegotiate with Omar and saying '“If I say I want protection for MullahOmar — the international community has a choice: remove me or leave ifthey disagree.”' In other words, in Afghanistan and in Iraq, the tolerance to thepresence of foreign influence and troops is growing thin, and in aperiod of growing financial problems around the world, it looks as ifthe U.S. is starting to pull back its horns. According to Stratfor: "Karzai is not saying this in a vacuum. U.S.Gen. David Petraeus is now heading Central Command, controlling theoperations in both Iraq and Afghanistan. Petraeus knows that the pathfrom the pre-surge chaos to the SOFA agreement was a fundamentaldecision by the United States: to negotiate with the Sunni insurgents,accept the idea that former insurgents eventually would become part ofthe coalition in Baghdad under U.S. sponsorship and finally, accept theidea that the Iraqi government would not necessarily be pro-American.The Americans settled for Baghdad not being a puppet of Iran." And although it may not seem obvious, there is a clear connection here,with Petraus being the centerpiece. According to Stratfor: "Petraeushas made it clear that he is prepared to negotiate with elements of theTaliban at least, and allow them to enter into a coalition governmentin Kabul. By extension, such a government would be increasinglyanti-American." Furthermore "Given the military reality on the ground,Petraeus is simply facing the obvious. The choices are fighting a warthat, at best, the United States can neither lose or win; withdraw andlet come what may; or deal with the Taliban as the United States dealtwith the Sunnis of Iraq." And Petraus works for Bush, at least for a few more weeks. As BobWoodward made clear in "The War Within," Petraus, along with NationalSecurity Advisor Stephen Hadley were the architects of the surgestrategy, with Bush's approval, which means that what we're seeing islikely to be the culmination of that strategy. Conclusion While the world worries about the financial crisis, a significantamount of activity is taking place in Iraq and Afghanistan, twoimportant strategic geopolitical arenas in the world, with thepotential to affect the global economy. First, look at the price of crude oil. Despite the fact that the globaleconomy has slowed, we must not forget that the price of oil startedits rise after 9/11, and that it began its most dramatic rally as theviolence in Baghdad reached a crescendo, while significant attacks tookplace in England, and one major attack, aimed at destroyingtrans-Atlantic flights was thwarted. So in that context, the oil market has been discounting thegeopolitical threat to the Middle East from an attack on Saudi Arabiaby Al-Qaeda. What the mainstream is also missing is that we are now in the earlystages of the end of the War on Terrorism, at least on a global stageas we have known it. What's troubling, though, is that although thecurrent chapter is closing, no one really knows what is next. To be sure, terrorism and anarchy continue to gain ground, or at leastcause trouble. Look at Pakistan, Thailand, Sri Lanka, Africa, andelsewhere. Yet, with regard to Iraq and Afghanistan, there are signsthat something is shifting. What is irrefutable, though, is that we are in a transition tosomething else, a period where all sides have to take a break, sincethe last seven years have sapped the strength of all participants. We are, then, entering a period of refueling, in an ongoing war with noseeming end in sight, as it is about ideology and world control. And what we're seeing is a change of who's in charge, which means thatwhat's ahead is perhaps the quiet before the storm. As Stratfor puts it: "On the surface, Karzai appears to be buying intothis strategy, but his move may be subtler than that. The United Stateswould be willing to work with factions of the Taliban that repudiate alQaeda. Karzai is saying that he is prepared to work with Omar, who isnot likely to repudiate al Qaeda. This can be read one of two ways. Thefirst is that Karzai is telling Petraeus that if he brings some of theTaliban into the coalition, it is only a matter of time before they getrid of Karzai. So he is going to make his own deal with the mostradical elements to protect himself. In other words, Karzai is tryingto stop the Americans from moving down that path by showing whereKarzai will take it. The other option, linked to the first, is thatKarzai, seeing the writing on the wall, wants to become as nice as hecan be to Omar, guessing that he will be visiting soon. It is not clearthat Omar wants anything to do with this, and Karzai’s show ofindependence c an be taken many ways. But as U.S.operations in Iraq are slowly shut down, Afghanistan will have to benext — and Karzai is already positioning himself." Also not clear is what will happen to bin Laden when all this is workedout, given that Omar knows where he is. And what is not known is whatObama will do with Iran. The next few months will be interestingindeed. One thing is certain, though, we would not be surprised if Mr. binLaden is killed or captured within the next six to twelve months, asthings are starting to reach a watershed in the Iraq-Afghanistan-Iranconflict.

Chart Courtesy of StockCharts.com Market Moves Brinker International (NYSE: EAT) andCheesecake Factory (Nasdaq: CAKE) Hug Recent Lows Brinker International (NYSE: EAT) andCheesecake Factory (Nasdaq: CAKE) showlittle signs of improvement. Chart Courtesy of StockCharts.com Yes, it's that time of the month, as this scribe travels the state ofTexas with the junior scribe in the pursuit of junior tennis perfectionand casual dining experiences. In this space we have reviewed the likes of Texas Roadhouse (Nasdaq:TXRH), Cracker Barrel (Nasdaq: CBRL), and the likes in the past. This time, we'd like to note that we found a new place, the AtlantaBread Cafe'(www.atlantabread.com), which as far as we can tell is notpublicly traded. Yet, the concept is interesting, as it's partly Starbucks, partlyPanera, and partly La Madeleine, another privately held restaurantchain with mulitple locations in Texas. The food was good, and theprices were not too bad, especially in comparison with the big guyslike Brinker and Cheescake Factory these days. What makes Atlanta interesting is that it had a nice steady business inWichita Falls, Texas, where we visited the location on MidwesternParkway several times over the weekend, in comparison to a Chili's wewent to on Sunday night in Dallas, where there were lots of emptybooths, and no lines. More interesting is that a local mom and pop home made Mexican foodrestaurant in Wichita Falls was packed to the rafters when we visitedon Friday night. It may have been a location thing, since the Valerostation next to it was selling regular at $1.79 per gallon. What's our point with all of this? Casual dining is a canary in a coalmine for the economy. And traditionally, lower gasoline prices havehelped the casual dining sector. Yet, what we saw this weekend as we trekked accross Texas was diverse.The highways had lots of traffic. But the casual diner was extremelyselective. The Atlanta Bread outlet was steady, but not full by any means. TheBrinker outlet, Chili's was also sparsely populated. Meanwhile, thelocally owned establishment was packed. To us, this suggests that the consumer is increasingly selective in howit spends its money. If you go to Chili's and order a drink, anappetizer, and three meals, it now runs close to $60. At Cheesecake Factory, the same fare would run over $100. Yet, at Momand Pop Mexican restaurants, the same would probably run around $40. It looks as if the big chains are going to have to do somethingdifferent in how they run their business, as they are apparently losingit to the local competition. Make money whether the market rises orfalls. Get Dr. Duarte's All NEW "Trading Futures For Dummies." The TradingManual for All Seasons. Updated, revised includes new charts, and fullchapter on ETF timing.

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