Politick

"Rumming it Up"

When the War Rally Redux comes, will it be on a news event? Not necessarily, but look for more positive news to begin filtering in this week. Some of the news will be real, and some crafted. And much of it will embed in the public's mind the basic problem with this war: "rumming it up" by politicization.

Blood for Oil? or for the Dollar!

Fascinating piece in The Daily Reckoning today called When Bush Comes to Shove. Why this war, and why the urgency? Conclusion is, to protect the Dollar as the world's currency. Key observation: in 1999 Iraq switched to the Euro. Other oil-producing nations were considering switching. Now the French make sense. We understand why they would try to create a counterforce to the US, which has been lacking since the fall of the Soviet Union, and why their urgency would have been increasing ever since the rise of The New Unilaterists in US leadership during the Bush Administration. But why now, why this war? Answer: to promote the switch to the Euro, which would give Europe enormous economic and political advantages.

Calm Before the Quagmire

Seldom does a war plan survive its first contact with the enemy. It is becoming clearer that the US miscalculated by underestimating the enemy. Rumor is that another 100,000 troops will have to be sent over. Is that just the start? In Vietnam, as in Gulf II, the US military was optimistic about a new war-making approach. Then it was the use of Air Cavalry to add extreme mobility to war, by shuffling troops in deep into enemy territory. One of the two initial battles is well shown in the recent movie, We Were Soldiers, and it demonstrated to the military that a much higher force level would be required to attempt to win the war. The quagmire was on. This time it is the use of precision weapons to Shock & Awe the enemy. It is not at all clear that they have been much awed by precise strikes on empty buildings. We still expect to rip through the Republican Guard in an open field fight - an optimism that may be tested this weekend. But once the RG melts back into Baghdad, a city of 5 million, the quagmire may be on.

In Elliott terms, we are seeing the consequence of Wave 2 optimism. Wave 2's of the bear market match and often exceed the optimism of the prior bull market psychology. This optimism after a long bull market seems to infect war as much as any other aspect of society. In 1914, the Germans thought they could take Paris in a month, and instead they squandered the flower of European youth in the mud at Flanders and Ypres. This was after a 17 year bull market. In 1965 we thought we could quickly pacify Vietnam. This was at the peak of another 17 year bull market. The lesson we learned from Vietnam - the Powell doctrine of overwhelming force - was successfully applied in Gulf I, well before the peak of our recent bull market. It is an indication of the social mood at a market peak to throw out the hard lessons learned and rely on the new glamorous war approach. After the 17 year Mother of all Bull Markets, I suppose it should be expected that something like this would happen. It is unfortunate to have to watch it on prime time TV.

4GW - Fourth Generation War

A problem is emerging which raises the question whether Bush II made the same mistake that Bush I made 12 years early: a wholly unrealistic expectation of a popular uprising. Bush I did not go in and finish the job in part because he thought a popular uprising would topple Saddam. It did start and was squelched, and the US did not support it despite encouraging it. Once burned, the forces of opposition are twice shy. And whatever is left of the Iraqi leadership is learning and modifying strategy away from the way they fought in '91 to so-called Fourth Generation Warfare, 4GW.

Blog of War

This war is unprecedented in its real-time coverage. The most immediate news is coming not from web pages or TV, but from blog sites. Check out The Blogs of War for a good example. The myriad of warblog sites include an Iraqi blogger who is giving a remarkable on-the-ground view from the other side. Another useful link is to the SkyNews Internet feed,which includes the excellent coverage of Sky's US affiliate, Fox. You can watch the war even while away from a TV! Oh joy.

The Foundation For This Blog: Doves, Hawks & Owls

The Yelnick view is that social mood causes events, not the opposite; although the two reinforce each other. The broad stock market indices are the best indicator of mood. How for example can the Biggest Asset Bubble since 1720 be explained off fundamentals, or efficient market theory?

War is a consequence of social mood. The first Iraqi war was fought for clear reasons, we had multilateral support, and the social mood was upbeat. This second Iraqi war is being threatened for ambiguous and changing reasons, the world does not support us and the social mood is downbeat. Should we go to war, and will we go to war? In a Bear Market mood, the 'will' often overrules the 'should.'

On Friday, Prof. Patrick Nye of Harvard, one of the Wise Men of foreign policy, spoke to the Commonwealth Club in SF. The paradox of American power is that just as we achieve a pre-eminence of power not seen since the peak of the Roman Empire - we are the only Superpower and since the Fall of the Berlin Wall have no rivals - we have an imperative to work multilaterally. Unfortunately for this moment of history, the Bush Jr administration has been captured by The New Unilaterists - foreign policy wonks who believe we should impose our will without living within the multilateral organizations and rules that we ourselves created to fight the Cold War. By kicking sand on on our allies with respect to their issues - Kyoto, Intl Criminal Court, and more - Bush has made it difficult to garner their support on our issues. Worse, if he continues, he might unravel in four years what we built over four decades - the Western Alliance. When asked what advice he would give Bush today, Prof. Nye first chuckled and said he never would have gotten himself in the position Bush is in. His advice to Bush: delay the war until after this summer, and continue to repair our relations with our allies. Sound advice, and likely to be followed in a Bull market - but Nye himself does not believe Bush will follow it. As Lincoln said in his brilliant wording of a war no one claimed to have wanted, "and the war came."

The coming (finally) of this war will shape the social character for the next 18 months. In Elliott Wave terms, we are now in a wave 2. Wave 2's have an interesting social character - the feeling that the Bull has returned. This can be seen in the many market pundits who have called the Mar12 low a major low and are now looking for a Return of the Bull. This optimism has occurred against a backdrop of war fears, unraveling of the Western Alliance, North Korean nukes and weakening economic news. Even more remarkable, it has occurred as most other market indicies have found new lows: United Kingdom, Japan, Belgium, Germany, Mexico, Singapore, Switzerland, our buddies in France, and even our own Dow Transport Average.

Thus social mood trumps news, and often it better reflects the underlying dynamic than so-called fundamentals. With this in mind, the political winds should twist and turn over the next few years in unexpected ways.