Big Picture Sunday

Charts: The big picture for equity charts is not good right now.

Fundamentals: In September 2008 Lehman Brothers collapsed. Cargo container traffic in the world’s busiest ports (such as Los Angeles and Singapore) immediately plunged faster and harder than at any time in history. Total number of containers is a proxy for world trade flows. Individual countries essentially stopped trading with each other and worked off internal inventories. In February 2009 global container traffic bottomed out and reversed sharply upward because the global financial system was obviously not going to simply vanish, which was the initial fear. Countries started trading with each other again and stopped draining existing inventories. Factories began once again to produce goods.
In September 2009 total container units hit a post Lehman peak and has been reversing downward ever since as global inventory rebuilding tapers off. Although the Port of Los Angeles reports containers are now full, blurring the data. America’s Q4 GDP numbers showed the greatest ever boost due to changes in inventories, an echo of the cataclysmic shock waves that followed Lehman’s collapse. Going forward we will see much smaller American GDP boosts because of inventory rebuilding. The early V-shape of the recovery seems mostly to be a snap back from the collapse of Lehman Brothers. Unless China really cranks it up, the recovery is going to get rocky.

Geopolitics: European reporters at NATO bases in Afghanistan are amazed to see Marines smiling and lustily singing marching songs as they mass for a huge offensive against Helmand province in a few weeks. The Marines are hungering for combat. Morale is very high. They have a new mission, a new leader, new troops, and new gear.
The Euro-porters ask: What kind of people are these Americans? Why are they so militaristic? And is the nightmare likely to continue? A look at recent events certainly paints a warlike picture of the USA. The US Navy is surrounding Iran with a fleet of Aegis anti-missile destroyers. The Pentagon is putting Patriot anti-missile batteries in the Arab Gulf states. Total encirclement. The Pentagon is preparing to fight a missile battle with Iran.
The CIA continues its Drone Blitz against N. Waziristan, killing 15 bad guys Friday with a drone wolf pack. President Obama publically tells us that he can’t completely rule out invading Somalia. In fact if reelected he will do just that in his second term.
Will America’s warlike behavior last? We know Al-Qaeda is in it for the long haul, is America? Before answering this question it is useful to study the history of soccer as it became the world’s most popular sport in the 19th century. Unlike every other country, America didn’t like the soft and gentle rules for soccer or as it is called everywhere else “football.” So the Americans borrowed rules from rugby and (amazingly) land warfare to create American football, which is the true national sport. That it is a stylized version of land warfare tells us Americans have been a warlike people for a long time. Military experts agree that the Union Army after the Civil War could have fairly easily conquered Europe and colonized the world. The only reason it didn’t was the empty continent at the US Army’s feet. Today it has more firepower than every other nation combined including every other nation that has ever existed.
Yes, America will keep fighting the Long War until it wins. DMU calculations project this will take 270 years, with a margin of error 100 years either way. These numbers are based on parallels between the early years of the Cold War and the early decades of the Long War as well as comparisons with other religious wars.