Hillary Breaks Feedback Loop

Long War: Sec. of State Hillary Clinton reached out to the rebels in Libya and forced them to resume shipping oil to Europe. At the same time the US froze about $30 billion worth of Libyan assets. Without the asset freeze the rebels wouldn't want to resume shipping oil because even though they control the physical oil fields they do not control the accounts of the Libyan state oil company. While all this was going on the US Navy steamed warships closer to the Libyan coast. Because of Hillary's moves the price of oil dropped today, curtailing (at least for now) the feedback loop I talked about yesterday.
Also, there are reports that when pro-Gaddafi commandos are dropped behind rebel lines they are being swallowed up and disappear. There has been no reports of successful sabotage of Libya's energy infrastructure. Hillary's actions tell us two things. The rebels must be under a fairly unified command. The reports about Al-Qaeda setting up shop in rebel territory must be false. Most interesting of all is an unexpected loud proclamation on the part of the rebels that they are not receiving any military aid from the US. Who said they were? Why are they protesting?
The markets are being whipsawed by events in Libya and the Mideast. One day it looks like the US has lost all control over the region and the next it looks like the US is turning Rage rebels into pro-US allies.

Specific Stocks: Let's say you are a Rage rebel and you are hunkering down in a fortified position waiting for your enemy to attack. What are you doing? Puffing furiously on cigarette after cigarette. Phillip Morris International (PMI) is your only comfort under these circumstances.

Rage Rebellion Feedback Loop

Long War: It looks as though Gaddafi's regime is falling in Libya. As a result, over the weekend, the various Rage rebellions flared up in every Mideast country with an existing revolt and spread to Oman, which had been mostly spared thus far. The Rage rebellion is powered by three factors: 1) Food inflation which is hammering poor people in the region. Seventy percent of their disposable income goes to food and prices are zooming up. But the Rage rebellion is causing the price of oil to rocket up faster than it would otherwise, which spills directly into food inflation and causes more rebellion, which causes more inflation, which causes more rebellion. 2) Online social networks like Facebook are structured as a series of interlocking cells. This is exactly how insurgencies have been organized since the beginning of civilization. Facebook changes the dynamics of revolution permanently. 3) America is impotent to stop revolutions that masquerade as democratic upheavals because democracy is a religion to Americans. It is even possible that America will actively fuel the Rage by pulling the rug out from its allies in the region. For instance, it might ask for the King of Bahrain to step down if another a bloody crackdown were to occur. It might do this if forced by public opinion. This would cause short term relief but long term pain.

Since there are about a dozen Rage revolutions let's peel back the onion on just two. Iraq: Al-Qaeda blew up the country's largest oil refinery over the weekend, which supplies about half of all Iraqi refined products for power plants, cars, etc... Also over the weekend about 20 Iraqi Rage protesters were killed by government security forces. The protesters' main gripe is power black-outs. Obviously Al-Qaeda will make the black-outs much worse with the destruction of this refinery, which will cause more violent protests, which will siphon Iraqi security forces away from protecting energy infrastructure, which will allow Al-Qaeda to blow-up more pipelines (two hit so far in recent days) and refineries, which will cause more protests, and the loop cycles on. Djibouti: This tiny country is vital to the CIA backed efforts to clobber Al-Shabab in Somalia. There is currently a big offensive by the African Union against the bad guys in Somalia and it has been going very well. Al-Shabab has been getting shredded. But the Rage protests have been virulent in Djibouti. If the government falls there, the AU will have to stop attacking Al-Shabab and instead invade Djibouti. Other than Iran, Eritrea is the world's only jihadist nation-state. Eritrea has a simmering border dispute with Djibouti and will probably try to repel an AU invasion. This could cascade into all sorts of unpredictable events.

Last week the US dollar fell as violence exploded in the Mideast. The Japanese Yen and Swiss Franc rose as safehaven currencies, but not the dollar. This has never happened before during the decade or so of the Long War. The dollar always has gone up as a safehaven when a geopolitical crisis erupts. So financial markets for one week at least are saying that America is losing the Long War. Traditional Long War hotspots like Afghanistan and Somalia have been doing okay lately. The dozen or so Rage rebellion hotspots are not looking so great. Maybe the relatively good news from the traditional hotspots outweighs the bad news elsewhere. And maybe not.

Keep Fighting If You Are Winning

Long War: Reports that Al-Qaeda had set up shop in the Libyan town of Durna has sent reporters scrambling to find the truth. They got hold of the former Gitmo detainee who was supposed to be the Emir of the new Islamic Emirate and this guy said the whole story is false. He seems pretty eager not to be locked up in Gitmo again. On the other hand, Durna has been used as a staging ground for jihadist fighters in the past. Libya is locked in the grip of a savage civil war and we won't know the truth until the dust settles. We do, however, know exactly what is happening in Afghanistan and ultimately this battlefront is more important than any other in the Long War.
The Afghan winter has been very mild, so mild that there has been no lull in the fighting, which is highly unusual. Around Kandahar and Helmand province the Taliban leadership has been essentially gutted. Over the past 4 months there have been over 2000 Special Forces night raids against Taliban chieftains. Two chieftains are killed or captured every week and 120 weapon caches are seized every week. With their leaders slain, large numbers of Taliban fighting units are routinely surrendering every week. The Taliban is splintering under this onslaught. The Haqqani network is faring better and has vowed to fight to the death. With this reversal in the Taliban's fortune, southern Afghanistan's economy is coming back to life as farmers go back to the plow, schools start to reopen, and even small industrial operations spring to life.
American and NATO success in Afghanistan does indeed pose an enormous danger to AQIM in North Africa. They know that American voters can become quite bellicose if they think their team is winning. If these voters believe that Iraq and Afghanistan can be put in the win column, then there will be a reluctant acceptance of American troops landing on the beaches of Libya.

Al-Qaeda's Islamic Emirate in Libya

Long War: The Libyan Rage rebels have taken control over most of the oil producing eastern portion of the country and are readying an assault on Tripoli, where Gaddafi is holed up. Gaddafi's position is not as weak as it seems because he controls a huge force of mercenaries, who were mostly outside the country when the revolt broke out. Gaddafi is assembling his mercenary army and only now beginning to strike back. One town that had been firmly under rebel control is now under attack by the mercenaries. The rebels have made big territorial gains in the east while Gaddafi's forces have been busy reestablishing control over Tripoli. Probably Gaddafi will start to do a better job of fighting back soon. He has been planning for this day for years.
There are three separate reports (from the Al Arabiya news outlet, the Italian government, and a human rights monitoring agency) saying that AQIM (Al-Qaeda North Africa) has established an Islamic Emirate in the eastern Libyan city of Derna. Al Qaeda is said to be broadcasting from its new emirate on an FM radio station and has established its usual harsh version of sharia law. Rebel groups that have seized control over other eastern cities vehemently deny that AQIM is even remotely involved in the uprising.
In the past every uprising in Libya has been led by jihadists so it is virtually impossible that AQIM is not neck deep in this uprising. And yet there is tremendous pressure on the US to create a No-Fly Zone (NFZ) over the part of Libya that Gaddafi controls. This would mean NATO jets must shoot down Libyan aircraft that are strafing a city Al-Qaeda has seized control over. If AQIM really has established this kind of foothold there will come a day when the USMC must once again land in Libya and destroy the bad guys.
President Obama, meanwhile, has not even called for Gaddafi to step down and is instead calling for a lengthy UN debate over international sanctions against Libya (good delaying tactic, Barry). There are many different ways that the civil war in Libya could play out. The most likely is the de facto creation of two countries (East Libya and West Libya) that are in a perpetual state of war like North and South Korea. The scariest part of the Libyan crisis is that the US is being tugged by public opinion at home and in Europe to act against its own interest. And the reason for this highlights the big difference between the Long War and the original Cold War: Many Western voters don't even believe that there is such a thing as the Long War. The reality is (of course) that there is such a global conflict going on and that for the last decade the good guys have been winning. In the Cold War there was an entire decade (the 70s) where the good guys were losing. There will certainly be decades like that in the Long War. If we are entering such a decade, investors and voters will be shocked at the consequences.
The US started losing the Cold War with the 1968 Tet Offensive in Vietnam. In real terms (accounting for inflation) the S&P 500 did not gain back the 1968 peak until 1992, nearly a quarter century. I'm not saying that the US is losing the Long War yet. But we are investors, not patriots or cheerleaders for the good guys. If the good guys really do start losing, we need to get out of equities.

Rage Against the Machine

Charts: The S&P 500 has plunged below the 1333 Fibonacci support level in huge volume. Not good. Next support is 1313. Charts over the past 2 years resemble the mid-1930s: rallies back then were explosive but in thin volume and corrections came in the form of waterfall patterns. Last year's biggest correction was 18%, not all that scary, but the velocity of the drop was the third worst in stock market history, which makes the drop look like a waterfall on a chart. It will be technically very bad if another waterfall correction ensues because the resemblance to the 30s charts will become more pronounced.

Long War: On Jan. 27 a CIA operative shot and killed 7 men while caught in traffic in the Pakistani city of Lahore. Probably some of the dead were ISI agents because the Pak intelligence agency stopped giving drone targeting information to the CIA and all drone strikes came to a halt. Over the past 24 hours drone strikes have resumed and 15 Taliban fighters have been vaporised by the flying robots. It is not clear if the CIA is acquiring its own targeting data or if the ISI has resumed its partnership with US intelligence. If drone strikes do not return to normal levels it will be very bad.
Libyan leader Gaddafi has lost control over sections of his country and oil shipments are being disrupted. Libya is the latest casualty in the Rage revolution. In 2004 Gaddafi halted his nuclear weapons program and started cooperating with the US in the Long War. While he is a bad person in a philosophical sense, for global financial markets and the Long War he is a good guy and the markets are melting down on his misfortune.
We have seen exiled Islamic radicals returning to Egypt and now the same thing is happening in Bahrain as bad guy political leader Hassan Meshaima returns to his native country in an attempt to co-opt the Rage revolution there. Probably in response to this bad news, the crown prince called off the military in suppressing the revolt and asked the Rage ringleaders what their demands were, hoping to bargain with them before the jihadists asserted control. The Rage leaders were unable to give the prince an answer. One is reminded of the 1950s movie Rebel Without a Cause where the lead character is asked what he is rebelling against and he answers: "What have you got?"

The Rage Revolution

Long War: The Jasmine revolution has been turned into the Rage revolution as one "day of rage" after another is announced in Mideastern countries. Two governments have been torn down, and one more (Bahrain) is threatened. The rage protesters have different demands in different countries, none of them is demanding Jeffersonian democracy.
Even Kurdistan has a Rage protest movement, a nasty one in fact. The Kurdish region of Iraq has been a de facto democracy for 20 years. It is prosperous and well run. Iraq is also a democracy and it too has a Rage movement, although a weak one. In Egypt the Rage protesters are no longer demanding democracy but higher wages and government benefits. The protest is now taking the shape of industrial work stoppages or strikes.
Islamic bad guys are beginning to sink their teeth into Rage movements and are acquiring a grip on them. Radical Egyptian clerics that had been exiled are making their way back to their homeland and receiving a hero's welcome. The most powerful is Sheik al-Qaradawi, a theorist for the Muslim Brotherhood. He recently gave a big speech in Cairo telling the protesters to keep on striking and calling for an end to the Egyptian Army's Gaza blockade, sticking the knife in hard where it hurts the most.
And the Egyptian Army blinked. It said that the blockade remains but Iran is for the first time allowed to sail warships through the Suez Canal. Some Western intelligence experts say that the Iranian warships will deliver weapons to Al-Qaeda in Yemen after hooking up with Syria.
And Islamic bad guys have blown up one Egyptian natural gas pipeline as well as attacked several casinos, dealing a blow to Egypt's key tourism industry. But all of this pales in comparison to the threat poised by the Rage movement in Bahrain. Here the fracture line is sectarian, with the Shiite majority pitted against the ruling Sunni minority.
Right next door to Bahrain is Saudi Arabia with its own dangerously rebellious Shiite population. In both Saudi and Bahrain the Shiites look to Iran for support when they get restless. So increasing Iran's mojo by allowing its navy passage through the Suez Canal adds fuel to the tensions in all the Sunni ruled Gulf Arab kingdoms. The Egyptian Army knows this but it feels under the gun as Islamic radicals start to make their voices heard.
On Feb. 26 Egyptian Rage protesters have scheduled a march on the Rafah Crossing on the border of the Gaza Strip. The Rafah Crossing is a key component in the Egyptian Army's Gaza blockade. It has already been opened once during this crisis although it is now closed.
The blockade is the canary in the coalmine for this crisis. The Rafah Crossing is the beating heart of that canary. Let's take a step back and consider the Egypt/Israel treaty. It is extremely unpopular in Egypt. But how logical is that? Israel has a large arsenal of nuclear weapons and no Arab country can say the same. And Israel has devoured Arab army after Arab army in countless 20th century wars. True democracies never go to war with other democracies. Too bad the Rage movements aren't about democracy.

Canary in the Coalmine.

Charts: The S&P 500 timidly inched above the final Fibonacci retracement number of 1333. Chartists will want to see at least 4 days above 1333 to say that resistance has been breached.

Long War: Israel says that Iran is sending two warships through the Suez Canal. Egypt says that it has heard nothing of the sort from Iran and warships can't sail through the canal without Egypt's permission. Denying Iran permission to transit the canal will create a firestorm of protest. Iran may be poking at the treaty between Israel and Egypt. Iran understands how vital that treaty is to global US hegemony.
Hamas has formally asked the Egyptian Army to lift the blockade of Gaza. It too is poking at the Egypt/Israeli treaty. The Egyptian Army responded by sending extra troops to the Sinai and it did so after consulting with Israel. Egypt cannot send extra troops to the borderland without Israel's permission according to the treaty. So this is a good sign.
The Jasmine Revolution has hit Hamas pretty hard. It is cracking down on demonstrators who are demanding an election. Hamas says there will be no election. Meanwhile, Hamas' more democratic rival, Fatah, in the West Bank, is in fact scheduling new elections. And Hamas has its hands full in another way. Rival Gaza terror group Islamic Jihad continues to fire mortar shells into Israel. Hamas is not ready for a full scale conflict with Israel so it is hunting down Islamic Jihad fighters and trying to curb them.
Egyptian intellectuals are printing article after article criticizing the Gaza blockade, so far to no effect. The blockade is indeed the canary in the coalmine and we must pay close attention to it.
The bigger picture is this: The coming election in Egypt is equivalent to the 1948 election in Italy. Without massive CIA involvement, the 1948 election would have been easily won by the Italian Communist Party, which back then was a total puppet of the Kremlin and bent on creating a Soviet-style dictatorship. The CIA actually created the Christian Democrat political movement, which dominates European politics today. Angela Merkel of Germany is a Christian Democrat, for instance. The CIA made sure the good guys won the 1948 election and continued rigging southern European elections into the 1960s. It created modern European democracy.
The CIA is certainly stretched thin. There were CIA fingerprints in the Sudanese election, which went well. But since then Arab jihadist tribesmen have killed over 200 South Sudanese civilians. In the months and years ahead there will be several elections in Long War hot spots. It is up to the CIA to make sure that the good guys win.

The GAME

For the last 200 years global stock markets have risen and fallen on the geopolitical fortunes of the Anglo-Saxon Superpower(ASS). The first ASS was Britain. At the end of the 19th century the British Navy and colonial armies controlled 87% of the Earth's surface. Alongside its physical empire of colonies Britain had a military empire of alliances with the advanced armies of Canada, Australia, New Zealand, and the two Boer Republics in South Africa, plus it could pull almost limitless quantities of superb native troops out of India. Queen Victoria handed out colonies to her grandson Kaiser Wilhelm, ruler of Germany, as Christmas presents. Earth had a one world government devoted to free market capitalism. The only thing that could shatter this stock market paradise was a civil war within the ranks of Britain's military empire. That is exactly what happened.
At the dawn of the 20th century Britain attacked its two strongest allies, the Boer Republics. This would be like America today attacking Canada and England. The physical British empire emerged intact from the Boer War, but Britain's military empire was mortally wounded. The result was two world wars and bear markets in Europe that lasted for 60 years or more.
A global secular bull market only returned when the second ASS arose, America. Today's ASS has the same vulnerabilities as the original one: decay in its global military alliance structure, which I call the GAME. In yesterday's blog I mentioned the treaty between Egypt and Israel facing a potential threat. That treaty is a linchpin to the GAME.
The US Congress is spending $7 billion to take power away from the Pakistani Army and channel it into the corrupt Pak civilian government. This is hurting the GAME and is one of the reasons why the Pak Army is not attacking the Taliban full throttle anymore. The Congressional policy is bearish for stocks. On the other hand, the White House has managed to restart Pak/India peace talks. This helps the global alliance structure and is bullish for stocks. If India and Pakistan were to hammer out a treaty, then they would both automatically become much more closely allied with the US and eventually they would become allies with each other as Egypt and Israel are today. If Pakistan then defeated the Taliban on its own soil it would be well placed to send troops overseas to help in the Long War, as South Korea does today.
Let me give one last example of good news for the GAME: The defense minister of Germany is pushing to eliminate its big sloppy conscript army and rebuild a smaller more lethal all volunteer force that could then be used in Long War hot spots around the globe. This is unpopular in Germany but the US is letting Germany pull 100% of its troops out of Afghanistan and is pushing for reform.
The overarching point is this: What's good for the GAME is good for stocks.

Gaza Blockade Under Threat

Long War: Mubarack is gone and Egypt is now formally a military dictatorship until elections are held in September. The Egyptian Army's first public statement was that all treaties were intact, which is to say that the treaty with Israel is intact. This treaty obligates the Egyptian Army to work with Israel in maintaining the blockade of the Gaza Strip. Hamas is in an ongoing low level war with Israel as it routinely launches rockets into the Jewish state. Military supplies for Hamas come through Egypt and this triggers treaty obligations and active participation in the blockade.
But the blockade is hugely unpopular with the Egyptian public and the Arab world at large. The Muslim Brotherhood is of course savagely opposed to the blockade. If pressure is successfully brought to bear against Egypt's active role in the blockade a series of events will be triggered. Arms will flow into Gaza at a much greater pace. Israel will be forced to step up efforts to block this flow, which will lead to armed conflict with smugglers. And Israel will put Egypt on the hot seat about its treaty obligations, potentially abrogating the treaty. The low level war between Hamas and Israel will become a full-fledged war. Egypt will face pressure to support Hamas.
Remember, the Hamas controlled Gaza Strip is essentially an Islamic dictatorship that won power through the ballot box. Any linkage between Egypt and a dictatorship of this sort is beyond toxic because it paves the way for the coming Egyptian elections to then follow the path of Iran, Hamas, Hezbollah, and I have a new one for you: Algeria, where hardcore jihadists won an election which was then declared null and void by the Algerian government in the 90s. So we have 4 examples of honest and free elections resulting in Islamic dictatorships.
The canary in the coalmine is therefore Egypt maintaining its Gaza blockade.

Capitalism is the Answer.

Charts: The S&P 500 is near the final retracement level in the Fibonacci sequence, which is 1324-1333. This represents a 100% retracement of the bear market low. As the final Fibonacci number, 1324-1333, should represent significant resistance for the broad index. The index blew past the last Fibonacci number with only a minor struggle, which isn't really good technical action. At the 100% retracement we want to see the index hugging resistance and struggling with it for a long while before finally conquering it.

Long War: The protest movement in Egypt is heating up again after a brief lull. Americans tend to think all geopolitical problems have one solution: democracy. So let's look at Egypt's fundamental problems and the possible solutions. Egypt is the world's largest importer of wheat. Other African countries import more rice than wheat and that's a good thing because the price of wheat is rising much faster than rice. Egypt is structurally incapable of switching away from wheat because the state owns most of the bread industry and massively subsidizes the price of bread, selling it to the masses at a huge loss, preventing market forces from working. Natural market forces are channeled into political protests. Every few years Egypt tries to cut bread subsidies which always triggers bread riots and this is what is happening now.
Mubarack's son, Gamal, has been pushing free market reforms over the past few years and his efforts have cut the state's involvement in the bread industry from total control to 60% control. Gamal has also been pushing a host of other free market reforms. During the first half of the Cold War, Egypt was a Soviet vassal state and it had a Soviet style economy that is still mostly intact. This is also true of most Arab countries outside the Gulf. Arab countries have gigantic trade barriers with each other and there is less trade between them than any other regional block of nations. This is why unemployment is so high in the Arab world. Only Iraq is free of trade barriers.
There is no political figure on the Egyptian scene interested in free market reform other than Gamal. Mubarack's son, of course, is now hated and reviled by those advocating regime change and democracy. This large, woolly and disparate group looks at democracy like an inkblot test. They see whatever they want to see in the word democracy. Working class folks in Cairo see democracy as the full restoration of bread subsidies and the ones who have lit themselves on fire have been owners of small restaurants.
During the Cold War the US fostered market oriented right wing dictators in countries like Chile and South Korea. These countries became democracies only after decades of building capitalism. Mubarack's instincts were never capitalistic and he only moved to the right when he was pushed by his son. If Gamal had been allowed to run the country, then it would have traveled the same path as South Korea. This is not happening (obviously). But somehow Egypt needs to find a way toward capitalism to solve its problems.

Omar Suleiman Strategic Genius

Long War: Sifting through Wiki-Leaks documents allows us to deduce that in 2005 Egypt's intelligence chief, Omar Suleiman, had his people reach out to Iraq's Sunni tribes and begin to convert them into US allies. This was the first step in creating the Sunni Awakening Movement, where the Sunni tribes rose up and crushed Al-Qaeda in Iraq. Without the Awakening Movement, America would have lost the Iraq War. Suleiman is a strategic genius, a Long War superhero who is now in charge of Egypt and bargaining with the Muslim Brotherhood. As the bargaining unfolds the Mullahs in Iran and Hezbollah are nervously reaching out to the Brotherhood, trying to stick a hand in the pie. The Brotherhood is slapping the hand away in fearful haste. Suleiman is famous for his white-hot hatred of Iran and the Brotherhood does not want to piss off the Egyptian leader.
And in Afghanistan we see Suleiman's Sunni Awakening Movement casting a long shadow over the bad guys. NATO commander Petraeus is finally stepping up his Afghan Local Police (ALP) program. ALP is based on the Awakening Movement. It involves Special Forces night raids that wipe out Taliban leaders in a given rural village. Special Forces then train local tribesmen to battle the Taliban as it regroups. This ends up devolving power away from Karzai's corrupt central government, slowly rebuilding Afghan society from the bottom up. Karzai is supposed to approve the expansion of ALP, which he grudingly is doing. It is unclear how Petraeus is pressuring Karzai, but somehow he is.
Petraeus is begining to give speeches to Congressmen and the media about Afghanistan, putting out the word that the good guys are winning. The Pentagon is under orders to ship soldiers home starting in July. The brass has a plan to ship a mere 5000 support troops home and replace them with private contractors. They know the media will see through this effort as a sham and are trying to create an atmosphere of wink, wink, nod, nod.
Petraeus understands that Americans are a warlike people, but Americans only like wars where the good guys are clearly winning and the bad guys are obliterated. The most popular war ever was the Spanish-American War. From a philosophical viewpoint it was completely immoral. Spain did nothing to America. Once the war was over, America seized Spain's colonies and did a horrible job of running them; a genuine travesty. But Spain's army was ripped apart like a Pit Bull tearing apart a toy poodle, very popular. The stock market and the American people want a repeat performance. So far so good.

Welcome Newcomers

Long War: The commander of NATO forces in Afghanistan, Gen. Petraeus, says "We've got our teeth in the enemy's jugular, and we're not letting go." He also says major Taliban safe havens are being destroyed, mid-level enemy commanders are absorbing enormous losses, and the Quetta Shura (Taliban governing council) has been thrown into disarray.
Some military bloggers are saying that the average USMC combat patrol kills one Taliban fighter and disarms one roadside bomb. Dozens of patrols are launched every day, so dead bad guys are stacking up like cord wood.
Like a spider web, every corner of the Long War is tugged and pulled by events in Afghanistan. Specifically, in Egypt, the Muslim Brotherhood must be aware of the losses incurred by the Taliban and Haqqani Network in Afghanistan and are eager to not feel the sharp end of that pointed stick. This is important in light of the sorry track record that democratic elections have played in the original Cold War and the Long War.
In 2006 the US pushed hard for elections in the Palestinian territories (big mistake). The result was that the Muslim Brotherhood's Palestinian affiliate, Hamas, won big election victories but then formed an Islamic dictatorship in the Gaza Strip, and will never hold a second election without being forced to do so. Much the same can be said of another Muslim Brotherhood offshoot, Hezbollah, in Lebanon. That country is on the verge of morphing into an Islamic dictatorship. Jimmy Carter pulled the rug out from under the Shah of Iran and the result was yet another election that ushered in an Islamic dictatorship. During the Cold War we saw Nicaragua elect the Sandinistas, who turned that country into a Soviet style dictatorship and a springboard for Soviet expansion in South America. Take this to the Bank: If the Brotherhood wins electoral control of Egypt, then very bad things will happen to your portfolio.
And this is why Team Obama is treading very carefully in Egypt (smart). As I write, the de facto leader of Egypt, VP Omar Suleiman, is negotiating with opposition leaders for a gradual edging into democracy where Mubarak is allowed to stay in the country, enjoy a ceremonial title, and retire to his villa in comfort. While the negotiations are taking place it appears that Egyptian Intelligence is arresting the street level ringleaders of the protest movement, hopefully neutering them and putting a roadblock in front of the evil Muslim Brotherhood.

Editor's Note: The blog has recently picked up a lot of new readers so I would like to welcome the newcomers and offer this programming note: terms used here to describe moral behavior are in reference to the stock market. The Muslim Brotherhood is evil because the stock market does not like it. It is irrelevant whether it is evil in a philosophical sense. Similarly, Hosni Mubarak is a "good guy" because he has advanced the aims of US foreign policy for three decades, which the stock market likes.

Is It Good For The GAME?

Long War: Egypt is currently being run by its vice-president, Suleiman, the former head of Egyptian intelligence. Mubarak is not actually running the government and has no ability to issue orders to the Egyptian Army. Suleiman could therefore depose Mubarak and establish a caretaker government. In fact the first steps in this process have begun.
It would be much better if Suleiman were to run the interim government rather than ElBaradei. There is a chance (I think a slight chance) that the Muslim Brotherhood could make ElBaradei its puppet. The Brotherhood practically pees its pants when it thinks about Suleiman. He is a jihadist killing machine. Interestingly, as soon as it looked like Suleiman might become the next leader of Egypt, a Brotherhood spokesman said they wouldn't run a candidate for President in the Sept. elections. If they really didn't run a candidate it would be unbelieveably good news.
The dynamic powering all these activities is the fact that the Egyptian Army is 100% designed, trained, equipped and supplied by the Pentagon and the US defense industry. If war were to break out between Egypt and Israel both countries would be totally dependent on the American military-industrial complex. It would be like a chess player moving both the black and white pieces on the board. In other words there really can't be a war between the two most powerful players in the Mideast. So the alliances that both countries have with the Untied States effectively forces them into alliance with each other. The upheaval in Egypt is (so far) strengthening the GAME. What's good for the GAME is good for the stock market. And we see that the global interlocking alliance structure has a mind of its own, not necessarily taking all its cues from the US President.

Meanwhile in Afghanistan

Long War: While street battles in Egypt have the world's attention the real war in Afghanistan roars on. And in Afghanistan the bad guys are losing. Hundreds of Taliban fighters have surrendered in the past couple months. Special Forces night strikes are killing huge numbers of bad guy leaders, so many in fact that new leaders are not filling the ranks swiftly enough to keep bad guy fighting units intact. This is why so many low level fighters are surrendering and why the gravity of the war is shifting north.
The mainstream media is furious that there is progress on the ground in Afghanistan. Stories reporting recent progress are far and few between. And any mention of progress is quickly followed by interviews and quotes from aid agencies doing humanitarian work in Afghanistan. The aid agencies all say that conditions are worse than ever. The more the Taliban takes it on the chin the more it targets aid workers.
US Army Gen. Rodriguez says that we should expect this trend to increase as well as assassination attempts on Afghan government officials as well as other classic terror techniques. He says that the Taliban will at some point stop fighting the US and Afghan Army entirely, cede control over what territory they currently run, and go 100% underground. They would then be like any other terrorist organization, relying on hidden roadside bombs and suicide strikes.
In the past the Taliban have profited from foreign aid flowing into the country. Their subjects are getting free medical care and irrigation canals, what's not to like? But now the free irrigation canals are considered a deadly threat by the Taliban. What does that tell you?
All of this is capped by a new information campaign spearheaded by Gen. Petraeus that is telling the world how deadly the Taliban is to civilians. The US Army in the past was afraid to hammer this point home because it caused Afghan civilians to lose morale. Now it pisses them off and makes them want to kill Taliban.