4 Little Wars = 1 Big War

Charts: Today’s newsletter goes out before the market’s close so let’s dwell on long term charts. Wall Street veterans often say, “As goes January so goes the year.” This is only partially true. Following a steep decline in January the most likely outcome for the rest of the year is a flat to slightly down market. And whether we are in a shaky rally or a stabilizing correction (almost the same thing) the charts do speak toward treading water.

Fundamentals: China tightened monetary policy last night. Inflation data from China the day before was benign so this came as a real shock. On the other hand, Chinese auto sales are still screeching upward, defying forecasts of a cool down. China is likely to keep tightening until its economy slows. Every 20th Century recovery was led by America. This is the first recovery led by China, so the effects of its tightening campaign are unpredictable.

Geopolitics: NATO thinks most of the civilians from Marja have made their escape. It is now sealing escape routes and tightening its encirclement of the Taliban fortress city. Marines and soldiers are wading through very muddy terrain, moving closer to the bad guys’ fortified positions. In the 1950s America built an extensive irrigation system crisscrossing the fertile lands around the city, part of an early Cold War nation building program. These canals are a mess and that’s why the ground is nearly impenetrable. There are more landmines around Marja than anywhere else in the world. After the Battle for Marja the US will rebuild these irrigation canals and bolster the region’s economy in other ways. Gen. McChrystal says these nation building efforts are more important than the fighting.
In Somalia, Al Shabab launched a huge mortar attack against the gathering Somali Army and African Union forces in Mogadishu. As in Marja, civilians are streaming out of Mogadishu as a titanic battle looms.
In Yemen, the government has agreed to a peace deal with the Houthi rebels. The fighting is gradually ebbing in the north, not coming to a sudden halt by any means. However, the Houthi/Saudi peace deal is finally taking hold and experts are confident that this second peace deal will also hold. The next step will be a big offensive against AQAP, which will take a while to organize.
This is the big picture: There is more coordination between the four little wars (Afghanistan, Pakistan, Somalia, and Yemen) within the Long War than ever before, a good thing.