Dallas, TX
June 9, 2009, 08:00 EST
Dr. Joe Duarte's Market I.Q.


The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors


Iran: Something Different Ahead?
What's Hot Today:
U.S. stock futures were flat in early Tuesday trading. Overnight markets were mixed. Oil and gold were stabilizing after volatile sessions on Monday. U.S. Ten Year note yields were above 3.8%.

Today's Economic Calendar:
  • 7:45 a.m. ICSC Chain Store Sales Index For June 6: Previous: -0.6%.

  • 8:55 a.m. Redbook Retail Sales Index For June 6: Previous: -0.3%.

  • 10:00 a.m. Apr Wholesale Trade: Expected: -1.2%. Previous: -1.8%.

  • 4:30 p.m. June 5 API Oil Industry Report

  • 5:00 p.m. ABC/Wash Post Consumer Conf For June 6: Previous: -49.
News For Thought

Slowly they turn. Silicon Valley, a region well known for contributing to the Obama presidential campaign is mounting an increasingly fierce opposition to part of the president's tax policy. According to The Hill.com: "On June 5, about a half-dozen tech trade associations discussed strategy for stopping a tax hike on multinational corporations, which would come if the Obama administration succeeds in changing a law that allows companies to defer taxes on overseas revenue of their subsidiaries." The Hill added: "Opponents of the proposal that will change the “deferral” law say Obama’s proposal will lead to more job losses here in the United States and would be a boon to their foreign competitors."

Republicans regain New York. According to The New York Times: "Republicans regained control of the New York State Senate, winning support from two dissident Democrats in a surprise power-sharing deal."

U.S. backed coalition wins Lebanon election. Some are saying that a surprise win for a U.S. backed coalition in Lebanon could be a sign that President Ahmadinejad could lose his election in Iran in the next few days. The Times, in a news analysis piece noted: "some analysts said that it was possible Lebanon’s election could be a harbinger of Friday’s presidential race in Iran, where a hard-line anti-American president, Mahmoud Ahmadinejad, may be losing ground against his main moderate challenger, Mir Hussein Moussavi." While President Ahmadinejad has grown unpopular for many reasons, including his troubled stewardship of the economy, political analysts said that President Obama has blunted the appeal of Mr. Ahmadinejad’s confrontation with the West.

Iran: Something Different Ahead?
Apparently Regime Change Is An Option For Iran

The upcoming Iranian election is getting very little airplay in the mainstream media. But one intelligence service is expecting some kind of change when the public goes to the polls later this week.

Stratfor.com, in a rather astute and timely analysis notes that the negative campaigning of Ahamadinejad, and the fact that Iran's Supreme Leader Ayatollah Ali Khamenei has all but condemned it are a sign that Iran is a state within reach of a significant place, the breaking point.

According to the intelligence service: "this is shaping up to be the most important presidential election in Iran’s history, especially because it is a bellwether of what is happening at a higher level: a potential unraveling of the political system that has been in place since Iran’s 1979 revolution." Stratfor notes that "the cohesiveness of the Iranian state has been deteriorating, with a rift between the president’s ultra-conservative camp and the pragmatic conservative camp led by Rafsanjani. The United States’ offer of rapprochement has made the situation even more urgent, as Tehran needs to arrive at an internal consensus on the direction of foreign policy and seek economic rehabilitation."

And things have been made worse by Ahmadinejad's poor handling of the economy, and Iran's international image. In other words, Ahmadinejad's stormy political period has led to a situation where "During Ahmadinejad’s presidency, the internal struggle has shifted: Where it once was a matter of the policy preferences of rival camps within a conservative-dominated political establishment, it has become a situation in which the nature of the Islamic republic’s political system is in question."

Central to the rift is Ahmadinejad's central tenet for governing: "Because he is the first Iranian president who is not also a cleric, Ahmadinejad sought to strengthen his position by claiming that his policies were guided by the highly revered and hidden 12th imam of the Shia, the Mahdi. This claim has unnerved the clerics: It undermines their privileged position, not only in the Iranian political system but also in religious terms. The implication of this is that if laypeople have access to the messiah, there is no need for them to rely on clerics — who historically have had tremendous influence among the masses."

In other words, he has attempted to take the clerics out of the equation, endangering their hold on power, while indirectly empowering the Republican Guard. According to Stratfor: "the elite Islamic Revolutionary Guards Corps (IRGC) is emerging as a powerful player in Iran, currently second only to the clerics. But as the clerical community becomes marred by internal disagreements and the aging ayatollahs who founded the republic anticipate the day when they will be succeeded by a second generation, the IRGC is very likely to emerge as the most powerful force within the state. The ayatollahs have used their religious position to control the ideological force; if they should become weaker, the non-clerical politicians and technocrats will have a tough time dealing with the IRGC."

And by doing so, Ahmadinejad has created what could be described as a point of no return for Iran's clerics, suggesting that some kind of action against him might be taken, political or otherwise.

Conclusion

The world is operating under the notion that Ahmadinejad will be in charge for a long time. And by June 13th, one day after the election, we'll all know whether that's true or not.

Yet, if he loses, several scenarios could develop. It is within plausibility that he would attempt a coup of some sort, using the Republican Guard as his vehicle for enforcement.

He may just go away quietly, which seems unlikely, or argue that the election was rigged, demand a recount, and stall his demise.

This is Iran, though, and he could have an accident as he drives to the presidential residence or to work over the next few days.

Or, he could cut a deal, and lose some of his power in the process, even if he wins.

The other possibility is that he may win, and continue with his nuclear development plan, his denial of the holocaust, and his antagonism of the United States. In which case, life would go on normally.

One thing is certain, though. A few years ago, it would have seemed impossible that Ahmadinejad could lose an election in Iran. But, as the Obama victory showed in the U.S. election, anything is quite possible these days.

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Market Moves - Stock Of The Day
Health Care SPDR ETF (NYSE: XLV) Feels The Heat of Washington's Summer
Congress is working feverishly to put together a health care "reform" package. And the Health Care SPDR ETF (NYSE: XLV) is feeling the pressure.



Chart Courtesy of StockCharts.com


The health care debate had quieted down, at least publicly over the past few weeks, as the political debate was concentrated on the economy. But as the latter has shown signs of improvement, the health care debate has risen to the top of the agenda.

And that means risk for companies that provide health care services, drugs, and materials, as the potential for some kind of rationing of care, and price controls is plausible.

what makes the concept even worse for investors, is that there are many ways that this debate could break, with few being beneficial, at least in the short term for this sector.

But here is something else to consider. Latvia had a failed bond auction last week. And there are rising concerns about other Eastern Europe former Soviet Republics also due for trouble in the short term. Russia is also having its own set of economic woes.

Especially hard hit might be the biotech sector, where expensive drugs for cancer and chronic ailments are at the top of the cost cutting agenda, along with "expensive" tests such as MRIs and CT scans that are often demanded by the public.

HMOs could also get hit, as the private insurance sector could conceivably face competition from a government backed insurer with access to the unlimited money printing press housed at the U.S. Treasury.

XLV is a diversified health care ETF, and its recent performance suggests that investors are starting to worry.

 


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