Geopolitics Is Everything

Geopolitics: Sometimes it’s hard to believe that geopolitics is the number one influence on the stock market because the financial press and pinhead academics seldom give geopolitics its proper due. Rather than go through 200 years of stock market history (not enough space here) let’s look at Black Monday, Oct. 19 1987. This was the single worst day in stock market history. In one day the Dow dropped 23%. On that same day world markets dropped even more. Pundits and academics claim that the monster decline was caused entirely by American computerized program trading. But world markets that didn’t rely on program trading fell even more and the downdraft started in Hong Kong, spread to Europe and only then to America. Asian markets started falling that day because two US warships shelled an Iranian oil platform in response to Iran firing missiles into a US flagged commercial vessel, which (wrongly) implied America was declaring war on Iran. Black Monday was a Long War event before Westerners even knew there was such a thing as the Long War. So how did the Long War go over the past week and the weekend?

In Somalia, the capital city of Mogadishu is experiencing a brief respite from heavy fighting. On one side we have the bad guys, Al-Shabab and Hizbul Islam. On the other side are the good guys, the Somali Army, 5000 troops from the African Union, and CIA advisors. The bad guys control over half of the city and are digging in furiously, preparing for a major assault from the good guys. In fighting last week, neighborhoods shifted from one side to the other and back again with massive civilian lives lost. Unlike Afghanistan, when innocents are killed in Somalia there is no superpower complaint desk where a grievance can be filed and compensation claimed. In this war innocents suffer in silence. After getting its clock cleaned for a year, the good guys claim they are ready to seize control of the city and push the bad guys back out into the hills. The African Union (AU) troops are apparently being beefed up and switching from peacekeeper to attacker. Al Shabab is complaining about these moves and hinting that the African countries contributing AU troops will be sorry if they go on the offensive.

In Northwestern China, the Islamic flare-up was worse than I initially reported. Five people have been killed so far. The first flare-up resulted in 200 deaths. Order has been restored for now because Beijing has flooded the Urumqi region with troops and clamped down hard. The top Communist official for the entire province has been sacked after the non-Islamic population demanded his head on a platter. Some lower level security officials have also been fired. This is a very unusual move for Beijing, to give in to protesters and sack one of their own. The firings indicate that Beijing will begin to use rougher and more violent methods to deal with its Muslim insurgency (unpredictable, maybe bullish).

In the North Caucasus region of Russia, police shot and killed 5 suicide bombers who were getting ready to board a train for Moscow where they obviously intended a splashy terrorist attack. This is the first time bad guys from Chechnya have attempted an attack in greater Russia in years. In a separate gun battle, good guys killed 3 bad guys over the weekend. Earlier in the week, 4 good guys were killed and 4 wounded. The violence in Russia’s Islamic insurgency is ratcheting up steadily week by week and it’s hard to see how a third full-scale war can be avoided.

In Northern Yemen, there had been a truce in the mini-war along the Saudi border but fighting broke out again this weekend with the Yemeni Army killing 4 bad guys on Sunday. Evidence of Saudi involvement is becoming more obvious with the Army toting Saudi weapons and brandishing Saudi emblems. Almost certainly there are Saudi advisors among the ranks of the good guys, which is good news because it means the impoverished Yemeni government has a powerful ally besides America.

In Afghanistan, Saturday a bomb hit a German military convoy, wounding 4 soldiers. Two US soldiers and two Canadian soldiers were killed over the weekend. One NATO soldier was killed Friday. The Pentagon still won’t give a bad guy body count. Earlier in the week an American airstrike incinerated two stolen NATO fuel trucks killing about 4 dozen bad guys and about 10 innocent civilians. The airstrike should have been a ground operation but there aren’t enough troops in country. In a ground operation, the civilians would have been able to get away, prisoners would have been captured and intelligence garnered.

In Iraq, 9 people have died recently from two widely separate suicide bombers. This is the least worrisome of all the Islamic hotspots. The Economist ran a big article where it details how Iraq is becoming a police state. An effective Iraqi police state while morally questionable is good for world stock markets. I still think the US can safely move 40,000 troops out of Iraq and into Afghanistan. What would facilitate this move would be the Iraqi government loosening its stupid and counterproductive rules against US troop actions, making the 100,000 troops left behind more effective. There is movement in this direction (bullish).

In Pakistan, the mighty Pakistani Army is back on the offensive. Helicopter gunships Monday killed 33 bad guys, incinerated 6 vehicles, and razed 15 Taliban houses. Pakistan has pulled elite units off the Indian frontier and is going all out again against the bad guys. I am looking for signs that McChrystal is going to get his extra troops and maybe the new offensive in Pakistan is a good sign on this score. Also, two weeks ago the US Army ordered 4000 extra military trucks, presumably they wouldn’t order all these new trucks if they thought they weren’t going to get the extra troops. So I am guardedly optimistic that extra troops are on the way (please, please, please).