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Farrell: Obama, Gadaffi and Merkel's Spanking

Fair and Unbiased - Right!

The President delivered an excellent speech Monday night on the situation in Libya. He covered the reasons, thoughts, negotiations with allies etc. that explained very well why he took the action he did. You actually didn't need to watch the speech. You don't even have to read the transcript today. All you have to do is look at where the story is positioned in the papers to see how good it was. The Wall Street Journal, one of my daily favorites and as close to a bible as the investment business can get, reported the President's talk on page 9. Don't give a partisan inch, ever. The New York Times gave it a banner headline on the front page. Subtle, right?

Enough said.

The President acted cautiously, but decisively when the time came. NATO has, or shortly will, take over the military operation. What would be very helpful politically is if more Arab nations followed Qatar's lead and recognized the rebels as the legitimate government. In fact, it would be helpful if we did. The US was the first nation to recognize Israel in 1948. We should be at the forefront this time as well.

Well, if Libya, why not Syria?

It is absolutely not because Assad, Jr., despite being a London trained eye doctor is, as Secretary Clinton said, a reformer. Is simply we intervened in Libya because we could. The argument that it would be consistent to follow through and intervene in Syria holds no water. You don't intervene to be consistent, you intervene because you can, and when it is in your interests to do so.

Middle East Turmoil
Middle East Turmoil

Part of the reason we intervened in Libya was to prevent a horrific slaughter that Qadaffi promised when he said they would go door to door to punish the rebels. It is in our interests as the world leader to prevent such a thing. Syria is also as close to Iran as nations get and the danger of being pulled into a protracted conflict is something to be avoided. But this situation could prove to be the most difficult one. If protests mount in Syria and embolden Iranians to do the same, why not attack Israel to divert attention?

I don't know what you do about this.

The headlines out of Europe, post the election weekend where both Sarkozy and Merkel got spanked, are, at best dismal. Italian banks might need to raise capital. The laughable thing about this is the patch work "grand design" financial rescue package that was duct taped together over last weekend. It calls for a modest cash down payment (to satisfy Germany) to fund the initial stages of the fund, and individual country pledges to come up with the rest if needed. Italy is on the hook for 17% or so of the total. Spain has a similar obligation. Okay, what happens if/when they can't ante up?

Does Germany step in? I wouldn't think so.

The last European stress test passed 82 out of 89 banks reviewed. The ink was barely dry on the report when the Irish banks went whoops and cratered due to bad real estate loans. This Thursday we will find out if the Irish banks need a few bazillion more to make ends meet. Why do I think it's almost guaranteed they will? One interesting side note to the Irish debacle is the homeowner never gets out from under the mortgage debt unless it's paid. In the US mortgage debt can be written off in bankruptcy. You might go another lifetime without credit availability, but the mortgage gets dismissed. Not so in the 'old sod'. You owe it. You can agree or disagree with the methodology, but it will be very tough for the Irish economy to recover with that burden.

The Case Shiller Home Price index made its monthly appearance Tuesday and showed further lousy news regarding home prices. The 20 City January index fell again by -3.1% year over year. The decline was -.2% month on month and that is the seventh consecutive monthly decline. With credit availability still tight, unemployment high, and a glut of homes (whether 'real' or 'shadow') offered for sale, an upturn in the housing index looks far away.

And the Conference Board survey of consumer confidencefell about as much as expected from 72 to 63.4 last month. Higher gas prices will usually do this survey in. The payroll tax cut implemented at the beginning of the year has been pretty much eaten up by higher food and higher gas costs. Yet the stock market marches higher. Volume is anemic at best and I'm worried that this recent move is end of the quarter window dressing.

Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.