The 270 Year War

Charts: The S&P 500 closed at 1103, down .2%. The Shanghai index is below its 200-day moving average, a sign that a bear market is brewing in the world’s primary engine for growth. All the BRIC country indexes are below their respective 100-day lines. Debate among the chartists is over: global stock markets are in a correction. But the S&P 500 is finding support at its 100-day line and resistance at its 50-day line. It is 0.2% above the October high. This could be interpreted as consolidation, creating a stock pickers market. I will give you stocks I have been buying at the end of the newsletter.

Fundamentals: The big rating agencies are downgrading Greek banks and threatening to do a lot worse. Greek public sector unions are clashing with riot police in the streets of Athens, blood is literally flowing. The rating agencies say if these strikes gain traction and derail government spending cuts, then Greek bonds will face radical downgrades, which will trigger a return of the Great Recession. Greece was supposed to float a big bond issue today, but it is delayed to buy time to battle and defeat the unions. The global recovery is dependent on stopping pseudo-Keynesian government stimulus programs like the US Congress’ recent (moronic) jobs bill. Greece is the frontline in a global fiscal war. If bond vigilantes force Greece to slash government spending, they will prevail elsewhere.

Geopolitics: Will the Long War really last for centuries? It is convenient to say the LW started in 1989 with the Iranian hostage crisis. But it really started in the 1920s with the Sudanese Civil War, where Muslim Arabs battled black Christians, resulting in nearly 2 million dead. This war spawned an intellectual movement called the Muslim Brotherhood (MB), which took root in Egypt in the 1920s. Al Qaeda is based on the teachings of the MB. Today the MB is tightly woven into the fabric of Egypt’s political life. It is a political party but cannot legally hold office. If Egypt were a democracy, the MB would take over in a heartbeat. Egypt is the cultural center of the Arab world. The LW cannot end until Egypt’s MB is eliminated. The first steps in doing just that occurred several days ago when the Sudanese government announced a ceasefire deal that might be the beginning of the end of the nearly century old Sudanese Civil War. So progress is being made in central Africa where it all started and because of the CIA this progress will move north, toward Egypt. Between Egypt and Sudan stands Al-Qaeda in the Maghreb (North Africa), Al Shabab, Hizbul Islam, and several other bad guy groups. These groups must all be defeated militarily before cultural changes can take root in Egypt that will eventually neuter the Muslim Brotherhood. But that can only occur if military progress is also made against deeply rooted Islamic separatist movements in Russia, the Philippines, Thailand, etc… So yes indeed, the LW will last for centuries.
And events on the ground are giving this impression to investors. The Battle of Marja has become a long slow grind. The Pak Army is still fighting in the Swat Valley; invading N. Waziristan probably won’t happen for a couple years. America’s top general in Iraq is publicizing a “Plan B” to keep US forces there longer than the President’s withdrawal timetable allows. But we must never forget that Americans are innately a warlike people and they will eventually reconcile themselves to a war that will be over between 2200 and 2400.

Specific Stocks: Cliffs Natural Resources (CLF) is a very good, high tech, iron ore and metallurgical coal miner with a big operation in N. America, a mid-size one in Australia, and a toehold in Brazil. CLF sells iron ore at the long term contract price. The spot price is twice as high as the contract price. The contract system itself is likely to vanish soon. This will double the price CLF receives for its ore.