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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: S. maltophilia who wrote (11286)	1/8/2003 2:09:14 PM
From: stockman_scott	Respond to of 89467

The never-ending war (Part 1) 321gold.com By David Chapman January 8, 2003 I couldn't help but be struck by a table in the most recent issue of Strategic Investment (Volume 17 #11 Agora Financial Publishing) wherein they showed a table that was stark in its reality of what the United States spends on defense compared to everyone else. The USA spends roughly $400 billion/year and rising on defense. The next 14 largest spenders, which include Russia and China, only outlay roughly $337 billion. The US's allies spend $198 billion while so-called rogue nations spend only $15 billion according to the SI article. The US defense expenditure represents roughly 4% of GDP. Certainly this outlay plays a role in providing some support for the economy but it is not at the levels seen in WW2 when defense spending rose to nearly 40% of GDP and was obviously a major economic support. But the USA defense spending so overwhelms everyone else that it almost seems to be in an arms race only with itself. And the US is in a league of its own when it comes to export of defense products as well. Oddly (or maybe not so oddly) a lot of its armaments went to the very nations they are currently at loggerheads with. That the US has overwhelming firepower in going against anyone is an understatement. And a great of the weapons it will be facing in any conflict will have come from them as well. The Taliban in Afghanistan as well as the Northern Alliance that allied them selves with the US were armed primarily with arms supplied by the US to oust the Soviets. And oddly it was the US that armed the Taliban to oust the Northern Alliance after Afghanistan degenerated into civil war after the Soviets left. The US has declared a war on terror. Trouble is the war on terror is being fought as if it were a conventional war complete with army, navy and air force and all the accompanying overwhelming force of the US. But it is not a conventional war it, is a war that requires police work and diplomacy not overwhelming force. But the US has the weaponry so it must be used, as that is the only way the economic wheels keep on turning. Afghanistan was conquered quickly. There are some expectations that while Iraq may pose a bigger problem it too will fall quickly. We are reminded that the Soviets also took over Afghanistan quickly. But within a year or so it was bogged down in a guerilla war that it ultimately lost. Eric Margolis reported in the Toronto Sun on December 19, 2002 that the USA too is now beginning to become bogged down in a guerilla war. The US-installed puppet and former CIA operative and former employee of Unocal Corp. (UCL-NYSE), Hamid Karzi controls only Kabul and needs US bodyguards. Little of the aid promised to Afghanistan has actually come. There are constant attacks on US forces and losses of equipment and casualties are being underreported. Worse, the US appears to have lost its focus on chasing Osama Bin Laden. While US forces are operating in both Afghanistan and Pakistan, supposedly looking for him, he is nowhere near capture than he was over a year ago when the invasion of Afghanistan got underway. Worse, there have been clashes between US forces and Pakistan forces many of who remain loyal to the ousted Taliban who were Pakistan's client state before the US invasion. Pakistan forces killed a US soldier. Afghani warlords are fighting each other mostly over control of the drug trade that is once again flourishing after being almost stamped out by the Taliban. Others, most likely Al Qaeda and Taliban, are using the hit and run tactics against US forces just as they did for years against the Soviets. And it doesn't come cheap as it is estimated that the US spends over $5 billion per month to maintain forces in Afghanistan and along the Pakistan border. Nor is it winning the hearts and minds of the Afghanis and the Pakistanis. But a deal with the US-backed Afghani government has been signed to build the long-planned pipeline that would come down from the Caspian Sea oil wells to the Arabian Sea. It is a never-ending war and clearly next on the agenda is Iraq. The US has massed overwhelming forces in the countries around Iraq. With 2/3rds of the world's oil reserves in three countries, Saudi Arabia, Iraq and Iran it is increasingly clear the real reasons as to why the US is there. Even Colin Powell has acknowledged as much the importance of Iraqi oil given the current situation exacerbated by the ongoing problems in Venezuela. The UN inspectors have thus far found no evidence of any weapons of mass destruction. Yet daily the US maintains a high level of rhetoric attacking Iraq, saying they are lying. UN inspectors have asked for help from the US in identifying areas but little assistance has been forthcoming. Air attacks on Iraqi defense systems occur almost daily in the so-called no-fly zones telling us that the war has already begun. But an all out attack on Iraq on the basis that it has abrogated the UN resolution is another matter and remains a difficult proposition given the demands that any invasion can only be approved by the UN. The estimated cost of a war in Iraq could be as low as $50 billion and as high as $200 billion or more depending on whether the war is over quickly or the US is forced into a dangerous ground war in the cities. Bombing from the air is easy but eventually they must put the troops in and do it the hard way. And the Iraqi oil fields are vulnerable. Recent articles in newspapers have discussed how the US must secure the oil fields to prevent oil soaring to as high as $80 or more. The worst nightmare is a bogged down war with the Iraqi oil fields ablaze. If one is supposed to feel confident about the possible outcome of this never-ending war then it is certainly not being reflected in the most important US economic symbol. The US dollar has been falling steadily now for months. It has gone from 87 cents against the Euro last March to nearly $1.05 recently. The US dollar index has fallen from 120 to 102 recently. This fall is logical against a backdrop of war jitters, low interest rates, rising commodity prices, a weak US economy, a weak US stock market, low consumer confidence, record trade deficits and record and unsustainable levels of debt held by corporations and consumers. War jitters seems to be a common theme these days for those wishing to blame all of the problems on Saddam Hussein. But anyone who says that war jitters is the reason their stock portfolio has fallen is completely ignoring the fact that with a price earnings ratio still well north of 30 for the S&P 500 and down roughly 40% or nearly 80% in the case of the NASDAQ that the stock indices remain grossly overvalued by historical standards. In order for valuations to come into line with historical valuations averages the stock market must either fall by at least half again or earnings must start improving and soon. We do not expect the latter. The never-ending war has taken the US into budget deficits once again. No amount of stimulus packages is going to buy their way out of this. Indeed recent proposals will probably make deficits larger. And no amount of reflation through ongoing massive expansion of the money supply is going to buy their way out of this morass either. Just check out Japan through the 1990's to see the futility of these policies. And Japan has a trade surplus not the world's largest trade deficit. No wonder a cynic can point out that seizing the Iraqi oil wells is the most important economic stimulus that the US could provide as it would instantly lower the cost of energy. And if Iraq were declared a US protectorate then the Iraqi oil would no longer be an import. Recent articles in the press from the US administration talked about US occupied Iraq in the same breath as occupied Germany and Japan after WW2. Only trouble is, unlike Germany and Japan, Iraq has not declared war on the US. All of these jitters are playing out positively for gold. Gold recently hit new highs near $355. But the real reason for gold's rise is the falling US dollar. War jitters alone would be insufficient to allow for a sustainable rise in gold. Keep buying gold, precious metals and gold and silver stocks on all pullbacks. Gold and gold stocks remain our number one investment for 2003. The US stock market is demonstrating some seasonal positiveness in early January. This is shifting our focus to cycle charts where rallies carried into January. We would hate to think that any of the 1903 (100 years), 1923 (80 years) or 1953 (50 years) would be the cycles that play out this year. They saw rallies in the first quarter then devastating declines after that. The 25-year (1978) cycle chart also managed to stay up into early January before capitulating to new lows later in the first quarter. Those charts bear close watching. As the market moves higher it clearly becomes more overvalued. But it is the next phase of the never-ending war that will tell the tale for this first quarter. This phase does not include the current problem with North Korea. North Korea has successfully called the US's bluff and diplomats are scrambling to diffuse the problem. Not so with Iraq. January 27 is an important date as that is when the UN inspectors must report their findings to the UN. Mid February is probably the latest a US-backed invasion of Iraq can get underway, as to wait any longer would risk going into the heat of summer. A war that is like a bad tap drip is not one that is going to warm investor's confidence. We wish to make a correction from our Forecast 2003 article. We stated "the stock markets could find themselves in the horrifying position of four years in a row down. Not even the Great Depression of the 1930's accomplished that as the market saw us down for three hard years 1929-1932. " Our correction? 1929 was also a down year so the Great Depression did see four consecutive down years. A down year in 2003 would match this record of futility. David Chapman email david@davidchapman.com www.davidchapman.com January 8, 2003 The opinions, estimates and projections stated are those of David Chapman as of the date hereof and are subject to change without notice. David Chapman, as a registered representative of Union Securities Ltd. makes every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. Neither David Chapman nor Union Securities Ltd. take responsibility for errors or omissions which may be contained therein, nor accept responsibility for losses arising from any use or reliance on this report or its contents. Neither the information nor any opinion expressed constitutes a solicitation for the sale or purchase of securities. Union Securities Ltd. may act as a financial advisor and/or underwriter for certain of the corporations mentioned and may receive remuneration from them. David Chapman and Union Securities Ltd. and its respective officers or directors may acquire from time to time the securities mentioned herein as principal or agent. Union Securities Ltd. is an independent investment dealer and is a member of the Toronto Stock Exchange, the Canadian Venture Exchange, the Investment Dealers Association and the Canadian Investor Protection Fund. 321gold Inc Miami USA