Archive for July, 2009

US Dollar Falls to New Low

Friday, July 31st, 2009

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The dollar has taken a big tumble today, falling below the technically significant 78.50 level. This is helping to push up the price of oil to near $70 per barrel:

oil-2009-07-31

And the price of gold is also rising:

gold-2009-07-31

Gold and oil generally trade inversely to the dollar. By increasing our budget deficit to $1 trillion this year and for most projected budget years in the future, we have guaranteed that the value of the dollar will fall.

Now tell me, aren’t gold and oil likely to be fairly low risk investments given the known situation of a dollar under pressure? I think so. Oil and gold are stores of value that people shift into from the dollar and treasury securities. This is a tough time to be issuing government bonds to fund a deficit.

We can have short-term moves up by the dollar like you see happened for several days in early-mid July based upon government intervention. But intervention simply yields short-term support, not the catalyst for a major change in trend.

This could get pretty ugly as the next likely target for the dollar is around 73 from the current $78.39. This could push oil up toward the top of our $75 per barrel range. It could also push gold up to the $1,000 range that has presented strong overhead resistance.

We will be watching this unfold very carefully.

Mark

Market Marches Toward Next Target

Friday, July 31st, 2009

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By now, if you are a regular reader of this blog, you are familiar with this chart. I’ve shown it several times in previous posts, explaining initially how we had crossed our first price target for the S&P 500 Index (the 200-day moving average) and then how we were in a trading range for an extended time period between the 200-day moving average and 950 on the index.

We broke through the 950 resistance level and are now working our way higher. Today, with the market trading a bit below 990, we are looking square in the eye a psychological resistance level of 1004. What’s 1004? That is the reading on the index this past election day.

Our next target? 1050

Earnings have been much better than expected this quarter, so the push above 950 has been on a fundamental company-oriented data point. As we leave earnings season, the time for economic-oriented data points (like the better than expected GDP report this morning and upcoming unemployment figures) will take over the direction of the market.

With people declaring that the recession is now over (Newsweek and Businessweek are the most recent), the public will start to buy into this. This means that expectations will be for better than forecast numbers instead of worse than forecast. It will be harder to impress investors into buying, so it will be a tougher go slogging the index through 1004 onto 1050.

Have a great weekend and enjoy the rally!

Mark

New Bull Market Signal – Or Extended Bear Rally Ahead?

Sunday, July 26th, 2009

sp-monthly

On a lazy Sunday afternoon I thought I’d scan the market to see what it has to say. One chart I review periodically is the S&P Monthly Chart compared to the 10-month moving average. You can see above that over the past 22 years (and quite honestly much longer) whenever the monthly chart crosses the 10-month moving average, you are in for an extended move in a new direction (there are periodic exceptions, but none since 1998).

The market is rallying strong right now as under-invested managers and individuals want to get in on the beginning of the next bull market. The liquidity flowing into the market will drive it higher for awhile – but these people are skittish. Any normal pullback, if not bought, will likely lead to these same people pulling money out of the market.

We are in a very interesting time and continued success will require paying close attention to fundamentals and technicals, particularly volume and money flows.

Enjoy your Sunday!

Mark

Market Strength Grows – Committing Money

Friday, July 24th, 2009

KISS: \"Rock and Roll All Nite\"

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Above is our favorite chart. You can see that we’ve finally broken out of the trading range between the 200-day moving average and 950 on the S&P 500 Index. And, we did it with gusto. You can see that volume has been in an increasing uptrend (I’ve drawn in the purple line) during this move into new territory.

ad-line

When looking to see if a rally has legs to run further, we need to look at some of the breadth indicators. Above is the Advance/Decline Line, which is showing internal strength in the market. The market is moving up at the same time that the number of individual stocks is moving higher. In other words, this isn’t a rally where a few leading stocks are moving higher while the broader market is languishing.

above-200-day

And finally, the chart above shows you that the number of stocks that are trading above their 200-day moving averages continues to grow. This is a strong indicator that many companies have permanently bottomed and are capitalizing on the potential for a recovery.

In a future post, I’ll address whether I believe we are in for a permanent recovery or setting ourselves up for a double-dip recession and that this rally is just a bull trap – a highly possible event given the potential for a commercial real estate crash much like the residential real estate crash. But that, like rampaging inflation, is somewhere in the future. Right now, its time to capitalize upon the strength in this rally and the move up to our next target of 1050 on the S&P 500 Index (see the line on the top chart).

Fortunately for our clients, we went all in (sorry, watching too much Texas Hold ‘Em on TV) in early March. If you’ve been a reader of this blog since then, you know all the reasons, both fundamental and technical. Plus, like our clients, you’ve made A LOT of money since the market low as well as year-to-date.

Next week, I’d look for a bit of a pull back, maybe to the 950 support level (remember, previous resistance is current support). We have been adding to our favorite recovery sectors (financials, tech, biotech, and some early cycle industrials) on pull backs while paring energy-sector investments back to market levels. We’ve also pared back gold in some accounts that were over-weight. Those proceeds will be used to broaden our clients’ exposure to our favorite recovery sectors.

I am hitting the road to Chicago in a few minutes. It’s fraternity brother weekend for me – an annual event where 10 or so of my college group meets up for a weekend of Cubs games, Wrigleyville, and catching up. Always fun to see and connect with the people you care about.

Have a great weekend, party like KISS (if you are not sure how to do that, just click on the video link above), and enjoy the rally (and the money you are making)!

Mark

Will We Break 950 Resistance?

Thursday, July 16th, 2009

YouTube – the answer to life, universe and everything.

Well, our rally continues and we are fast approaching the upper resistance level of 950. The question we should all be asking is, will we break through it and start the next leg up? As we crossed 942 today, it reminded me or one of my favorite books by Douglas Adams. Check out the video (or better yet, go borrow the book from the library) if you’ve ever wondered what the ultimate answer is to life, the universe, and everything (maybe even whether the next leg up lays ahead).

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You can see on our graph that the 950 resistance is in sight. We have been nibbling away at some undervalued stocks for clients with cash, but I am hesitant to commit large sums of money until we move out of the trading range. Maybe we will have an answer soon and can add to some of the financials and techs we’ve started accumulating.

Enjoy the oddly British humor of Douglas Adams as well as the rally. More will become clear in time – maybe even sooner rather than later.

Mark

Oil Uptrend Reviewed

Wednesday, July 15th, 2009

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As you can see on the chart, oil bounced off the uptrend line and is rallying. Today, it is up 4.25% as I write this. Why? As I wrote in the previous post (go read it and check out the Cass Elliott video) investors are charged up by the better than expected earnings reports we’ve had so far this quarter. They are beginning to move back into the camp that says we are heading out of the recession due to the positive impact of the monetary stimulus.

Positive impact of monetary stimulus gives you two things: (1) better equity returns (so the broad market is up very big today); and (2) potential inflation and a weak dollar (oil moves higher with a weak dollar and rising inflation).

I wanted to give you an update on our current tactical activities in light of this. We are using this move as an opportunity to lighten up on energy holdings in accounts that were at or above our target levels for the energy sector.

If you read the Investment Commentary included in your quarter-end statement (assuming that you are one of our clients), you know that I believe the recovery will be lumpy and move up in fits and starts, but ultimately we will see 1050 on the S&P 500 Index, at which point we will reassess our strategy. Our focus is primarily on Technology and Financials (selected ones in selected industry groups within these sectors) as we move out of the recession.

You see the line I’ve drawn in around 66 on the graph. This will be some strong overhead resistance for the price of oil, and we are using this rally up to that level to move out of some energy holdings and will redeploy those dollars into tech and financials on pullbacks.

Mark

Market Makes Music!

Wednesday, July 15th, 2009

Cass Elliott – Make Your Own Kind of Music

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The market is surely singing today (my birthday, by the way). Given the rally today and the fact that our range bound market is showing some signs of life, I thought I’d share one of my favorite songs. Just click on the Mama Cass link above (but avoid singing along and trying to eat a ham sandwich) and do your best karaoke – hey, what other blog gives you a chance to do this :)

If you’ve followed this blog the past several weeks, you are familiar with this chart. You can see that we are rallying back up toward the 950 level. If we can break above it (remembering the rule of 3’s – it has to close above it for 3 days or by 3%), we are likely headed to the 1050 level.

Better than expected earnings reports were the catalyst for the rally as investors are moving into the camp that says the monetary stimulus is taking hold and that maybe the end of the recession is in sight.

Enjoy the rally and your karaoke experience with big mama!

Mark

This Isn’t Good

Sunday, July 12th, 2009

YouTube – Warren Zevon Lawyers, Guns and Money.

I’ve been trying to determine if there is anything that could come out of left field to send the stock market back to the depths of the crash. This could be it.  From this week’s Newsweek magazine:

Independent’s Day


Obama doesn’t want to look back, but Attorney General Eric Holder may probe Bush-era torture anyway.

By: Daniel Klaidman

NEWSWEEK
From the magazine issue dated Jul 20, 2009

It’s the morning after Independence Day, and Eric Holder Jr. is feeling the weight of history. The night before, he’d stood on the roof of the White House alongside the president of the United States, leaning over a railing to watch fireworks burst over the Mall, the monuments to Lincoln and Washington aglow at either end. “I was so struck by the fact that for the first time in history an African-American was presiding over this celebration of what our nation is all about,” he says. Now, sitting at his kitchen table in jeans and a gray polo shirt, as his 11-year-old son, Buddy, dashes in and out of the room, Holder is reflecting on his own role. He doesn’t dwell on the fact that he’s the country’s first black attorney general. He is focused instead on the tension that the best of his predecessors have confronted: how does one faithfully serve both the law and the president?

Alone among cabinet officers, attorneys general are partisan appointees expected to rise above partisanship. All struggle to find a happy medium between loyalty and independence. Few succeed. At one extreme looms Alberto Gonzales, who allowed the Justice Department to be run like Tammany Hall. At the other is Janet Reno, whose righteousness and folksy eccentricities marginalized her within the Clinton administration. Lean too far one way and you corrupt the office, too far the other way and you render yourself impotent. Mindful of history, Holder is trying to get the balance right. “You have the responsibility of enforcing the nation’s laws, and you have to be seen as neutral, detached, and nonpartisan in that effort,” Holder says. “But the reality of being A.G. is that I’m also part of the president’s team. I want the president to succeed; I campaigned for him. I share his world view and values.”

These are not just the philosophical musings of a new attorney general. Holder, 58, may be on the verge of asserting his independence in a profound way. Four knowledgeable sources tell NEWSWEEK that he is now leaning toward appointing a prosecutor to investigate the Bush administration’s brutal interrogation practices, something the president has been reluctant to do. While no final decision has been made, an announcement could come in a matter of weeks, say these sources, who decline to be identified discussing a sensitive law-enforcement matter. Such a decision would roil the country, would likely plunge Washington into a new round of partisan warfare, and could even imperil Obama’s domestic priorities, including health care and energy reform. Holder knows all this, and he has been wrestling with the question for months. “I hope that whatever decision I make would not have a negative impact on the president’s agenda,” he says. “But that can’t be a part of my decision.”

Holder is not a natural renegade. His first instinct is to shy away from confrontation, to search for common ground. If he disagrees with you, he’s likely to compliment you first before staking out an opposing position. “Now, you see, that’s interesting,” he’ll begin, gently. As a trial judge in Washington, D.C., in the late 1980s and early ’90s, he was known as a tough sentencer (“Hold-’em Holder”). But he even managed to win over convicts he was putting behind bars. “As a judge, he had a natural grace,” recalls Reid Weingarten, a former Justice Department colleague and a close friend. “He was so sensitive when he sent someone off to prison, the guy would thank him.” Holder acknowledges that he struggles against a tendency to please, that he’s had to learn to be more assertive over the years. “The thing I have to watch out for is the desire to be a team player,” he says, well aware that he’s on the verge of becoming something else entirely.

When Holder and his wife, Sharon Malone, glide into a dinner party they change the atmosphere. In a town famous for its drabness, they’re an attractive, poised, and uncommonly elegant pair—not unlike the new first couple. But they’re also a study in contrasts. Holder is disarmingly grounded, with none of the false humility that usually signals vanity in a Washington player. He plunges into conversation with a smile, utterly comfortable in his skin. His wife, at first, is more guarded. She grew up in the Deep South under Jim Crow—her sister, Vivian Malone Jones, integrated the University of Alabama—and has a fierce sense of right and wrong. At a recent dinner in a leafy corner of Bethesda, Malone drew a direct line from the sins of America’s racial past to the abuses of the Guantánamo Bay detention center. Both are examples of “what we have not done in the face of injustice,” she said at one point, her Southern accent becoming more discernible as her voice rose with indignation. At the same party, Holder praised the Bush administration for setting up an “effective antiterror infrastructure.”

Malone traces many of their differences to their divergent upbringings. “His parents are from the West Indies..he experienced a kinder, gentler version of the black experience,” she says. Holder grew up in East Elmhurst, Queens, a lower-middle-class neighborhood in the shadow of New York’s La Guardia Airport. The neighborhood has long been a steppingstone for immigrants, but also attracted blacks moving north during the Great Migration. When Holder was growing up in the 1950s, there were fewer houses—mostly semi-detached clapboard and brick homes, like the one his family owned on the corner of 101st Street and 24th Avenue—and more trees. Today the neighborhood is dominated by Mexican, Dominican and South Asian families, with a diminishing number of West Indians and African-Americans.

As we walk up 24th on a recent Saturday, Holder describes for me a happy and largely drama-free childhood. The family was comfortable enough. His father, Eric Sr., was in real estate and owned a few small buildings in Harlem. His mother, Miriam, stayed at home and doted on her two sons. Little Ricky, as he was known, was bright, athletic, and good-natured. As we walk past the baseball diamond where Holder played center field, he recalls how he used to occasionally catch glimpses of Willie Mays leaving or entering his mansion on nearby Ditmas Boulevard. Arriving at the basketball courts of PS 127, Holder bumps into a couple of old schoolyard buddies, greets them with a soul handshake and falls into an easy banter, reminiscing about “back in the day” when they dominated the hardcourt. “Ancient history,” says Jeff Aubry, now a state assemblyman. “When gods walked the earth,” responds Holder, who dunked for the first time on these courts at age 16.

Holder doesn’t dispute the idea that his happy upbringing has led to a generally sunny view of the world. “I grew up in a stable neighborhood in a stable, two-parent family, and I never really saw the reality of racism or felt the insecurity that comes with it,” he says. “That edge that Sharon’s got—I don’t have it. She’s more suspicious of people. I am more trusting.” There’s a pause, and then, with a weary chuckle, one signaling gravity rather than levity, Holder says, “Lesson learned.” And then adds, under his breath: “Marc Rich.”

The name of the fugitive financier pardoned—with Holder’s blessing—at the tail end of the Clinton administration still gnaws at him. It isn’t hard to see why. As a Justice Department lawyer, Holder made a name for himself prosecuting corrupt politicians and judges. He began his career in 1976, straight out of Columbia Law School, in the Justice Department’s Public Integrity Section, where prosecutors are imbued with a sense of rectitude and learn to fend off political interference. And though Holder has bluntly acknowledged that he “blew it,” the Rich decision haunts him. Given his professional roots, he says, “the notion that you would take actions based on political considerations runs counter to everything in my DNA.” Aides say that his recent confirmation hearings, which aired the details of the Rich pardon, were in a way liberating; he aspires to no higher office and is now free to be his own man. But his wife says that part of what drives him today is a continuing hunger for redemption.

When I ask Malone the inevitable questions about Rich, she looks pained. “It was awful; it was a terrible time,” she says. But she also casts the episode as a lesson about character, arguing that her husband’s trusting nature was exploited by Rich’s conniving lawyers. “Eric sees himself as the nice guy. In a lot of ways that’s a good thing. He’s always saying, ‘You get more out of people with kindness than meanness.’ But when he leaves the ‘nice guy’ behind, that’s when he’s strongest.”

Any White House tests an attorney general’s strength. But one run by Rahm Emanuel requires a particular brand of fortitude. A legendary enforcer of presidential will, Emanuel relentlessly tries to anticipate political threats that could harm his boss. He hates surprises. That makes the Justice Department, with its independent mandate, an inherently nervous-making place for Emanuel. During the first Clinton administration, he was famous for blitzing Justice officials with phone calls, obsessively trying to gather intelligence, plant policy ideas, and generally keep tabs on the department.

One of his main interlocutors back then was Holder. With Reno marginalized by the Clintonites, Holder, then serving as deputy attorney general, became the White House’s main channel to Justice. A mutual respect developed between the two men, and an affection endures to this day. (Malone, a well-regarded ob-gyn, delivered one of Emanuel’s kids.) “Rahm’s style is often misunderstood,” says Holder. “He brings a rigor and a discipline that is a net plus to this administration.” For his part, Emanuel calls Holder a “strong, independent attorney general.” But Emanuel’s agitated presence hangs over the building—”the wrath of Rahm,” one Justice lawyer calls it—and he is clearly on the minds of Holder and his aides as they weigh whether to launch a probe into the Bush administration’s interrogation policies.

Holder began to review those policies in April. As he pored over reports and listened to briefings, he became increasingly troubled. There were startling indications that some interrogators had gone far beyond what had been authorized in the legal opinions issued by the Justice Department, which were themselves controversial. He told one intimate that what he saw “turned my stomach.”

It was soon clear to Holder that he might have to launch an investigation to determine whether crimes were committed under the Bush administration and prosecutions warranted. The obstacles were obvious. For a new administration to reach back and investigate its predecessor is rare, if not unprecedented. After having been deeply involved in the decision to authorize Ken Starr to investigate Bill Clinton’s affair with Monica Lewinsky, Holder well knew how politicized things could get. He worried about the impact on the CIA, whose operatives would be at the center of any probe. And he could clearly read the signals coming out of the White House. President Obama had already deflected the left wing of his party and human-rights organizations by saying, “We should be looking forward and not backwards” when it came to Bush-era abuses.

Still, Holder couldn’t shake what he had learned in reports about the treatment of prisoners at the CIA’s “black sites.” If the public knew the details, he and his aides figured, there would be a groundswell of support for an independent probe. He raised with his staff the possibility of appointing a prosecutor. According to three sources familiar with the process, they discussed several potential choices and the criteria for such a sensitive investigation. Holder was looking for someone with “gravitas and grit,” according to one of these sources, all of whom declined to be named. At one point, an aide joked that Holder might need to clone Patrick Fitzgerald, the hard-charging, independent-minded U.S. attorney who had prosecuted Scooter Libby in the Plamegate affair. In the end, Holder asked for a list of 10 candidates, five from within the Justice Department and five from outside.

On April 15 the attorney general traveled to West Point, where he had been invited to give a speech dedicating the military academy’s new Center for the Rule of Law. As he mingled with cadets before his speech, Holder’s aides furiously worked their BlackBerrys, trying to find out what was happening back in Washington. For weeks Holder had participated in a contentious internal debate over whether the Obama administration should release the Bush-era legal opinions that had authorized waterboarding and other harsh interrogation methods. He had argued to administration officials that “if you don’t release the memos, you’ll own the policy.” CIA Director Leon Panetta, a shrewd political operator, countered that full disclosure would damage the government’s ability to recruit spies and harm national security; he pushed to release only heavily redacted versions.

Holder and his aides thought they’d been losing the internal battle. What they didn’t know was that, at that very moment, Obama was staging a mock debate in Emanuel’s office in order to come to a final decision. In his address to the cadets, Holder cited George Washington’s admonition at the Battle of Trenton, Christmas 1776, that “captive British soldiers were to be treated with humanity, regardless of how Colonial soldiers captured in battle might be treated.” As Holder flew back to Washington on the FBI’s Cessna Citation, Obama reached his decision. The memos would be released in full.

Holder and his team celebrated quietly, and waited for national outrage to build. But they’d miscalculated. The memos had already received such public notoriety that the new details in them did not shock many people. (Even the revelation, a few days later, that 9/11 mastermind Khalid Sheikh Mohammed and another detainee had been waterboarded hundreds of times did not drastically alter the contours of the story.) And the White House certainly did its part to head off further controversy. On the Sunday after the memos were revealed, Emanuel appeared on This Week With George Stephanopoulos and declared that there would be no prosecutions of CIA operatives who had acted in good faith with the guidance they were given. In his statement announcing the release of the memos, Obama said, “This is a time for reflection, not retribution.” (Throughout, however, he has been careful to say that the final decision is the attorney general’s to make.)

Emanuel and other administration officials could see that the politics of national security was turning against them. When I interviewed a senior White House official in early April, he remarked that Republicans had figured out that they could attack Obama on these issues essentially free of cost. “The genius of the Obama presidency so far has been an ability to keep social issues off the docket,” he said. “But now the Republicans have found their dream…issue and they have nothing to lose.”

Emanuel’s response to the torture memos should not have surprised Holder. In the months since the inauguration, the relationship between the Justice Department and the White House had been marred by surprising tension and acrimony. A certain amount of friction is inherent in the relationship, even healthy. But in the Obama administration the bad blood between the camps has at times been striking. The first detonation occurred in only the third week of the administration, soon after a Justice lawyer walked into a courtroom in California and argued that a lawsuit, brought by a British detainee who was alleging torture, should have been thrown out on national-security grounds. By invoking the “state secrets” privilege, the lawyer was reaffirming a position staked out by the Bush administration. The move provoked an uproar among liberals and human-rights groups. It also infuriated Obama, who learned about it from the front page of The New York Times. “This is not the way I like to make decisions,” he icily told aides, according to two administration officials, who declined to be identified discussing the president’s private reactions. White House officials were livid and accused the Justice Department of sandbagging the president. Justice officials countered that they’d notified the White House counsel’s office about the position they had planned to take.

Other missteps were made directly by Holder. Early on, he gave a speech on race relations in honor of Black History Month. He used the infelicitous phrase “nation of cowards” to describe the hair trigger that Americans are on when it comes to race. The quote churned through the cable conversation for a couple of news cycles and caused significant heartburn at the White House; Holder had not vetted the language with his staff. A few weeks later, he told reporters he planned to push for reinstating the ban on assault weapons, which had expired in 2004. He was simply repeating a position that Obama had taken on numerous occasions during the campaign, but at a time when the White House was desperate to win over pro-gun moderate Democrats in Congress. “It’s not what we wanted to talk about,” said one annoyed White House official, who declined to be identified criticizing the attorney general.

The miscues began to reinforce a narrative that Justice has had a hard time shaking. White House officials have complained that Holder and his staff are not sufficiently attuned to their political needs. Holder is well liked inside the department. His relaxed, unpretentious style—on a flight to Rome in May for a meeting of justice ministers, he popped out of his cabin with his iPod on, mimicking Bobby Darin performing “Beyond the Sea”—has bred tremendous loyalty among his personal staff. But that staff is largely made up of veteran prosecutors and lawyers whom Holder has known and worked with for years. They do not see the president’s political fortunes as their primary concern. Among some White House officials there is a not-too-subtle undertone suggesting that Holder has “overlearned the lessons of Marc Rich,” as one administration official said to me.

The tensions came to a head in June. By then, Congress was in full revolt over the prospect of Gitmo detainees being transferred to the United States, and the Senate had already voted to block funding to shut down Guantánamo. On the afternoon of June 3, a White House official called Holder’s office to let him know that a compromise had been reached with Senate Democrats. The deal had been cut without input from Justice, according to three department officials who did not want to be identified discussing internal matters, and it imposed onerous restrictions that would make it harder to move detainees from Cuba to the United States.

Especially galling was the fact that the White House then asked Holder to go up to the Hill that evening to meet with Senate Democrats and bless the deal. Holder declined—a snub in the delicate dance of Washington politics—and in-stead dispatched the deputy attorney general in his place. Ultimately the measure passed, despite Justice’s objections. Obama aides deny that they left Holder out of the loop. “There was no decision to cut them out, and they were not cut out,” says one White House official. “That’s a misunderstanding.”

Holder is clearly not looking to have a contentious relationship with the White House. It’s not his nature, and he knows it’s not smart politics. His desire to get along has proved useful in his career before, and may now. Emanuel attributes any early problems to the fact that “everyone was getting their sea legs,” and insists things have been patched up. “It’s not like we’re all sitting around singing ‘Kumbaya,’ ” he says, but he insists that Obama got in Holder exactly what he wanted: “a strong, independent leader.”

There’s an obvious affinity between Holder and the man who appointed him to be the first black attorney general of the United States. They are both black men raised outside the conventional African-American tradition who worked their way to the top of the meritocracy. They are lawyers committed to translating the law into justice. Having spent most of their adult lives in the public arena, both know intimately the tug of war between principle and pragmatism. Obama, Holder says confidently, “understands the nature of what we do at the Justice Department in a way no recent president has. He’s a damn good lawyer, and he understands the value of having an independent attorney general.”

The next few weeks, though, could test Holder’s confidence. After the prospect of torture investigations seemed to lose momentum in April, the attorney general and his aides turned to other pressing issues. They were preoccupied with Gitmo, developing a hugely complex new set of detention and prosecution policies, and putting out the daily fires that go along with running a 110,000-person department. The regular meetings Holder’s team had been having on the torture question died down. Some aides began to wonder whether the idea of appointing a prosecutor was off the table.

But in late June Holder asked an aide for a copy of the CIA inspector general’s thick classified report on interrogation abuses. He cleared his schedule and, over two days, holed up alone in his Justice Depart ment office, immersed himself in what Dick Cheney once referred to as “the dark side.” He read the report twice, the first time as a lawyer, looking for evidence and instances of transgressions that might call for prosecution. The second time, he started to absorb what he was reading at a more emotional level. He was “shocked and saddened,” he told a friend, by what government servants were alleged to have done in America’s name. When he was done he stood at his window for a long time, staring at Constitution Avenue.