Friday, December 14, 2007

The Surge is Surging

Don’t look now, but the Petraeus surge is surging.

Surging Media: Yesterday, a USA Today editorial acknowledged the surge is working. The headline reads, “Surge’s success holds chance to seize the moment in Iraq.” The paper says, “Democrats are lost in time.” Moreover, U.S. and Iraqi casualties are down sharply. In fact, U.S. military deaths are down to their lowest level in twenty months. Also, Sunni groups, once sympathetic to al-Qaeda, have shifted allegiances. They are now working alongside U.S. forces. Over on the Shiite side, “about 70,000 local, pro-government groups, a bit like neighborhood watch groups, have formed to expose extremist militias.”

Surging Oil: There’s a big story in the Wall Street Journal yesterday about Iraqi oil output surging back to prewar levels (“Iraqi Oil Is Easing Supply Strain”). According to the WSJ, Iraqi output is back to about 2.5 million barrels a day. In addition, average oil exports in November came in just shy of 2 million barrels a day. That’s a post-invasion record. Meanwhile, the Iraqi government is using some of this revenue, around $2 billion, to invest in their decrepit infrastructure. Sure, it’s going to take more money than that to get real improvements, but it’s a good start and an encouraging signal.

Surging Bonds: Bloomberg reports that, “[Iraq’s] $2.7 billion of 5.8 percent bonds due in 2028 returned 15.2 percent since July, according to JPMorgan Chase & Co. index data. Only Ecuador’s debt gained more, rising 18 percent.” Iraqi bonds were trading at 55 cents on the dollar last August, with an 11.5 percent yield. Today, they have rallied to 64 cents, bringing the yield down to 9.9 percent. U.S. money managers are saying these are the hottest bonds in the emerging market. This is a clear sign of confidence in the conduct of the war. After all, the folks swooping up this debt have money on the line. They are backing up opinions with real money. One bond manager who oversees $14 billion says, “There’s optimism the surge is starting to pay off.”