Dallas, TX
January 14, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Al Qaeda Has An Air Force And Its Main Passenger Seems To Be Cocaine
What's Hot Today:
U.S. stock index futures are pointing to a flat opening on Thursday. Global markets bounced back overnight. The focus is on earnings over the short term.

Today's Economic Calendar:
  • Retail Sales 8:30 AM ET

  • Jobless Claims 8:30 AM ET

  • Import and Export Prices 8:30 AM ET

  • RBC CASH Index 9:00 AM ET

  • Business Inventories 10:00 AM ET

  • EIA Natural Gas Report 10:30 AM ET

  • 3-Month Bill Announcement 11:00 AM ET

  • 6-Month Bill Announcement 11:00 AM ET

  • 30-Yr Bond Auction 1:00 PM ET

  • Fed Balance Sheet 4:30 PM ET

  • Money Supply 4:30 PM ET
News For Thought

Intel earnings in focus. Intel is expected to release earnings after the market closes today. Aside from the company's results, its outlook is more likely to set the tone for the stock, and likely for the tech sector and the market. According to The Wall Street Journal: "The semiconductor company is expected to post earnings of 30 cents a share, up from four cents a share in the fourth quarter of 2008, according to analysts polled by Thomson Reuters. Intel's revenue is forecast to hit $10.2 billion, up 23%."

Bank tax details emerge. The Obama administration is expected to unveil a play to tax $90 billion from 50 large banks, brokers, and insurance companies over ten year. The tax is being billed as a financial crisis responsibility fee and will be "based on their exposure to risk" according to the Wall Street Journal. The Journal added: "Roughly half the 50 would be U.S. banks, including the largest, Goldman Sachs, J.P. Morgan Chase, Bank of America and Morgan Stanley. Because large firms that benefited from the government's debt guarantees would also be included, the tax would hit companies such as General Electric Co. Banks that have repaid their TARP money wouldn't escape taxation. The taxed firms are expected to pay the cost of bailout money that went to General Motors Co. and Chrysler LLC, which are exempt from the tax. The administration official defended the omission by contending that U.S. auto makers collapsed in part because of a financial crisis of the banks' making."

Beige Book cites modest improvement. According to The Wall Street Journal: "Economic conditions have "improved modestly" in recent weeks across the country, the Federal Reserve's latest survey of regional conditions found. Consumer spending is rising and business activity is growing, but the job market remained weak through much of the country. The Fed's "beige book" survey, released Wednesday, said that conditions in 10 of its 12 districts have improved lately. The exceptions, the Philadelphia and Richmond, Va., districts, reported "mixed conditions". In the last beige book, released in early December, eight districts reported improved conditions."

The key is employment, and that continues to flounder. Over the last few days everyday people we speak to are telling us that they are taking on more part time work in order to make ends meet, while others are finding little work. Our other indirect indicator of the employment market, rush hour traffic is still very soft. Just yesterday we were able to drive along a well worn path to our destination in about five minutes. In the heyday of the Internet boom that same distance at the same time of the day would have taken us about 25 minutes. It's not statistically significant or hard data, but it's sure as hell very noticeable, especially since there is a school zone on the way.

Al Qaeda Has An Air Force And Its Main Passenger Seems To Be Cocaine
Intelligence Chiefs Reportedly Ignore Key Data About Al Qaeda Air Transport
If you're wondering about where the money to fund Al Qaeda's steady stream of suicide bombings and attacks come from, think cocaine.

That's right, there is now evidence that formally links South American "rebel" groups to Al Qaeda. For years, we have been reporting that Hezbollah has been operating in the southern most regions of South America, where Brazil, Argentina, and Urugay meet. In fact, one informal communication that we received over the holiday suggested that Hezbollah is now working as far north as Guatemala, and according to our source, which did not confirm this, the general belief of the population in the area is that it is well known and accepted by the inhabitants of the areas where Hezbollah operates that they are there, and that there is no objection from anyone involved about them being there.

Thus, it's not surprising that Al Qaeda is involved in what seems to be conceptually similar operations in South America.

What is bothersome is that "The report, a copy of which was obtained by Reuters, was ignored, and the problem has since escalated into what security officials in several countries describe as a global security threat." According to Reuters: "The clandestine fleet has grown to include twin-engine turboprops, executive jets and retired Boeing 727s that are flying multi-ton loads of cocaine and possibly weapons to an area in Africa where factions of al Qaeda are believed to be facilitating the smuggling of drugs to Europe, the officials say. Al Qaeda in the Islamic Maghreb (AQIM) has been held responsible for car and suicide bombings in Algeria and Mauritania." Furthermore: "Gunmen and bandits with links to AQIM have also stepped up kidnappings of Europeans for ransom, who are then passed on to AQIM factions seeking ransom payments."

Here's how it works: "The aircraft hopscotch across South American countries, picking up tons of cocaine and jet fuel, officials say. They then soar across the Atlantic to West Africa and the Sahel, where the drugs are funneled across the Sahara Desert and into Europe. An examination of documents and interviews with officials in the United States and three West African nations suggest that at least 10 aircraft have been discovered using this air route since 2006. Officials warn that many of these aircraft were detected purely by chance. They caution that the real number involved in the networks is likely considerably higher."

The network has expanded now to include Boeing 727 aircraft, which are used to tranport planeloads of drugs accross the ocean for distribution in Europe. Officials are also concerned about the potential for weapons transporting, noting that a Boeing 727 can carry up to ten tons (20,000 pounds) of cargo.

According to Reuters: "The U.S. official who wrote the report for the Department of Homeland Security said the al Qaeda connection was unclear at the time. The official is a counter-narcotics aviation expert who asked to remain anonymous as he is not authorized to speak on the record. He said he was dismayed by the lack of attention to the matter since he wrote the report."

The official was quoted as follows: ""You've got an established terrorist connection on this side of the Atlantic. Now on the Africa side you have the al Qaeda connection and it's extremely disturbing and a little bit mystifying that it's not one of the top priorities of the government."

Conclusion

The U.S. government is increasingly worrisome and it's hard to know if this is an Obama problem, a Bush problem, or a situation that has been in place for longer. What is clear is that U.S. intelligence and the ability to prioritize and deliver significant solutions is compromised.

To be sure, there are a lot of hard working people in the field who risk their lives on a daily basis to protect us. We've spoken to some of them, and have heard multiple accounts from credible sources of very significant operations that have yielded major successes, that have never been reported, and likely should never be reported.

Yet, once in a while you see a report like this, and you see the failed Christmas bombing episode, and it always points to bad decision making at the top of some significant food chain, as the message never gets relayed to the proper authorities who can actually make a decision.

Thus the problem could be one of bureaucracy, or one of personality conflicts between members of the same department, or even intradepartment rivalries.

The bottom line is that we've been lucky. Al Qaeda seems to be more interested in transporting cocaine than in dropping bombs over small cities or towns at this point. But, that's not a guarantee that it won't change its focus in the future.

What's the bottom line? Right now it's cocaine. Tomorrow it could be a dirty bomb or worse.

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Market Moves - Stock Of The Day
Powershares Aerospace and Defense ETF (NYSE: PPA) Remains In Up Trend
The Powershares Aerospace and Defense ETF (NYSE: PPA) remains in a steady up trend.



Chart Courtesy of StockCharts.com


The government can't connect the dots, but the market is not having any trouble. It's clear that the U.S., and the rest of the civilized world, in one way or another is at war with Al-Qaeda and other groups, formally or otherwise.

Yet, that war is nebulous. It's not always fought in the open. And it's not always certain who is involved, as governments, directly or otherwise are often in league with other groups. Then there is the drug trade, which is intertwined with the terrorist trade, and adds another layer of complexity.

What is clear, though, is that automation, such as the drones that provide intelligence and firepower in Afghanistan and Pakistan, are here to stay. And what is clear is that there are other military developments that are either already quietly deployed or in some stage of development.

Defense companies, like them or not, are now in their sweet spot, as uncertainty is on the rise and the need for surveillance and weaponry is on the rise around the world.

That's why PPA is in a steady up trend, which over the last few weeks has ingored just about every up and down in the market while moving nicely and steadily higher.
 

 


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