Pound Sand

Fundamentals: Socialists have won elections in France and Greece. They vow to eliminate austerity. But what can they do? The socialists will go to private investors in the bond market and say, "Loan us money so we can raise the retirement age on our state pensions." Private investors will refuse. So the socialists will make the same request to the ECB. The ECB will say, "Pound sand!" Then the socialists can either go back to their voters and actually implement austerity and free market reform or they can leave the Euro-zone. Leaving the Euro-zone will mean instant hyper-inflation a la Zimbabwe.

So long as the stock market sees the above scenario playing out with no major countries taking the Zimbabwe option, we might be okay.

Long War: This is what I think Petraeus is doing: He is shaping the global battlefield in preparation for future action. He is not trying to win the Long War in the near future, but rather move chess pieces around so that in a few years there can be a push to start rolling back the bad guys.

This shaping exercise seems to involve massive effort in one or two key spots and letting things slide elsewhere. For instance, we saw the big national and super-national armies of Kenya, Ethiopia, and the African Union pour everything they had into a mighty campaign to destroy the conventional fighting capabilities of Al-Shabab in North Africa. But there hasn't been much effort to rein in AQIM in Mali and Nigeria, where the bad guys are spreading unchecked. However they are spreading away from the center of the Long War, expanding out into the periphery, the edge of northern and central Africa. So the African part of the Long War is not smaller, it just has a different (better) shape.

Now we see massive effort poured into Yemen. Only yesterday an Al-Qaeda leader with a $5 million bounty on his head was killed by CIA drones. We are told this bad guy was plotting an attack on America. Along with massive drone action we are seeing huge battles in Yemen similar to the huge battles that dislodged Al-Shabab in Somalia.

At the same time the drone campaign has ramped up again in the Pak tribal lands.

Pressure is being applied at just two places. This will change the shape of the global battlefield which forms a gigantic arc starting with the ex-Soviet countries in central Asia through the Mideast and down into Africa. This evolving "new shape" seems to involve punching holes in the arc, cutting it up into little arcs.