Wednesday, February 18, 2015

World Peace or World War III?

World Peace or World War III?
by Martin D. Weiss, Ph.D.
Dear Julius,
Dr. Martin Weiss
Just about 40 hours ago, on the blood-stained battlegrounds of Eastern Ukraine, a new cease-fire officially went into effect.
All of Europe heaved a deep sigh of relief at the prospect of peace. The world rejoiced. And global investors sprang into action:
They stopped dumping the euro and began snubbing the dollar.
They slammed the breaks on their race to safety, made a quick about-face, and marched back toward their favorite speculative hang-outs — European and Asian stocks ... oil and commodities ... high-yield bonds ... even Russian stocks and the Russian ruble.
They assumed — or at least harbored the hope — that the worst of the conflict between the East and West was over.
Are they right?
Yes, the new cease-fire will probably provide a temporary respite.
And yes, for the time being, investors will dump the dollar ... rush back into the euro ... buy beaten-down stocks ... jump into hot commodities ... explore emerging markets ... and resume the hunt for all the popular "risk" investments they can lay their hands on.
But if you think this is the beginning of the end of East-West conflicts, think again.
Sure, if you're looking down at this scene from the perspective of the main West European signers of the cease-fire — Ukrainian president Petro Poroshenko, French President Fran├žois Hollande, or German chancellor Angela Merkel — it might be politically convenient for you to say it's the best exit door from the conflict.
But if you're Russian President Vladimir Putin, you see an entirely different scene:
You see the Ukrainian cease-fire as little more than one more tactical victory in a well-planned, protracted chess match against the West.
You know that you still have all your pawns and power pieces on the board. You know you still have the Western kings cornered. And most important, unlike them, you have never once taken the military option off the table.
Fiona Hill, formerly America's top intelligence officer on Russia, clearly agrees that's the underlying reality that pervades every battle and every summit. Quoted last week under the New York Times headline "In Ukraine, It's Putin's Game," she points out that "he plays on multiple fronts. We start talking about a military response, and he starts talking about diplomacy."
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Moreover, she predicts that any new cease-fire accord will only be temporary — just like the one inked in Minsk last September.
Why? Precisely because Mr. Putin constantly shifts between diplomatic and military options, depending on which he believes will give Russia the greatest tactical advantage at any given time.
Most Western analysts know this. What's worse, in Russia, nearly all citizens are proud of it.
They're proud Putin is in control. They love the image of their leader running circles around the West. And this sentiment runs a lot deeper — with far greater consequences — than Poroshenko, Hollande, Merkel or Obama seem to understand. In fact ...
Many Russians now firmly believe Obama and the West
are plotting to launch World War III against them!
Sounds far-fetched and off the deep end, right? For most of us in the West, of course.
But for millions of Russian citizens, not only is it a believable scenario, it's an outright forecast documented by a large body of "objective facts" and supported by a wide range of "respected international experts."
To fully understand this sentiment and its potential impact, let me take you on a virtual tour to Moscow — to talk to people on the street, visit some friends and see the conflict through their eyes.
You will be shocked by their world view — not only because it's so contrary to what we know, but also because it's framed in such an apparently rational manner, making it so believable in their eyes.
Moscow, February 2015
We join the crowds strolling down the picturesque Arbat Street.
Even though it's only a couple of hours past noon, the sun seems like it's already setting in the West. But the sky is clear and the weather is an unseasonably warm 2 degrees Celsius.
A few young men mill about, making snide remarks, telling jokes. One of the most popular goes something like this:
"Napoleon wanted to win Russia, but was defeated because he couldn't stand Russian cold in winter. Russia winter has saved the country several times, and now it has decided to attack Boston, New York and Washington — even BEFORE they attack us."
We stop in a cheap store. Even though it's the second week of February, all sorts of Putin T-shirts are flying off the shelf. One champions Putin as a rock star. In another, Putin gives a thumbs up sign, saying "All OK!" A third proudly portrays him as the leader of the Russian "EMPIRE."
But we're not here to buy T-shirts. Instead, our friends invite us up for tea, piroshki, and some TV newscasts.

It's not a long metro ride to their flat. So we catch a train from the Smolenskaya station. And we overhear a young woman talking with great conviction:
"Ever since I was a child," she says, "I have always been afraid of Americans. In the movies, I saw how they killed Native Americans, and I feared that they would come to my house and kick me out. My childhood intuition was right — Syria, Libya, Iraq, Yugoslavia, Ukraine … somebody needs to stop these advocates of 'democracy' armed with heavy weapons!"
We aren't terribly surprised. But we are curious: Are these views just anecdotal or do they actually represent the majority opinion?
As we zoom ahead in the dark subway tunnel, our youngest host whips out her iPhone, googles Levada-Center (a non-government, non-partisan polling organization), and rattles off a series of survey stats.
One year ago, she reports, the anti-American sentiment in Russia was bad enough — 44% of respondents had a negative view of the United States.
Just ten months later, it surged to 74%. Now it's at 81%, and rising.
Amazing. It's one of the fastest doubling of anti-American sentiment in any major industrial nation in history.
We walk into our friends' sprawling Soviet-era apartment complex, and we hear the TV droning through the windows of first-floor residents. So when we get upstairs, we ask them to tune in to the same station.
It's an increasingly popular media portal by the name of Zvezda. A roundtable of well-known military and political experts are debating "THE war."
They don't all agree on the details. But the scenario they paint has only one outcome ...
World War III
Here's how they see events unfolding ...
Breakdown of Ceasefire: It all begins with a crumbling of the just-announced cease-fire in Ukraine. And, they hasten to add, most Western analysts agree. The reasons, they say, are obvious:
The so-called "peace accord" does nothing to end the terrible hardships suffered by the Russian-speaking population in Eastern Ukraine.
The Western powers still want Ukraine to stay under its orbit.
The leaders in Kiev still view the rebels as a bunch of bandits and their friends in Russia as a band of ruthless invaders.
American and Western Europeans, they say, may pose as advocates of democracy, but in reality, seek nothing but economic dominance. And as soon as that economic dominance is threatened, they act with military force.
Vietnam-Type War: As the cease-fire breaks down, Obama sends heavy lethal weapons to Kiev.
"Don't believe me?" one military expert asks rhetorically. "Then, just read America's own press reports in Forbes and the Wall Street Journal."
309 U.S. Millionaires Pull Money
from Banking System
Reports are coming in from all around the country: Prominent U.S. millionaires have been taking their money out of the country's banks and financial services firms.
309 millionaires in total.
Some of these are names you might even recognize. They've been moving their money to a surprising location in the U.S.—a safe haven most folks have forgotten.
When you see this story, you'll understand why.
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Already, "Obama is leaning over the cliff called "arms for Ukraine," goes the argument. So when the cease-fire ends, both his allies and opponents in the U.S. Congress push him over the brink.
Even the leaders of Germany and France, formerly vehemently opposed to the idea, egg him on.
"Soon," the Russian talking heads predict, "a new Vietnam-type war bursts onto the scene" — but with some critical differences from that decade-long Cold-War conflict of the 20th Century:
  • Unlike Vietnam, Ukraine borders Russia. It is historically, geographically, and strategically far more important to Moscow than Hanoi ever was.
  • Unlike Vietnam, where Russia supported the North almost exclusively with weapons and money, in this war, Russia sends tens of thousands of troops into battle; and this time, they go with no pretense of denying the invasion.
  • Unlike Vietnam, where the U.S. fought almost entirely on its own (with only token troops contributed by Asian allies), this time, America's European NATO allies have no choice but to jump into the war with full force.
Russia's immediate strategic goal: To recreate Novorossiya or New Russia.
It is a new Moscow-allied "independent" country stretching from the Russian borders all the way to what is now the Western border of Ukraine with Moldova. (See map, circa 1897.)
Suddenly, Ukraine's access to the Black Sea is blocked. Suddenly, Ukraine is transformed into a land-locked country. And almost immediately, the Ukrainian economy is destroyed, forcing the West to accept a massive default on its billions in loans disbursed so far.
Russia, despite any of its own financial problems, steps in as "the savior." Putin's troops march triumphantly into Kiev. And they restore a Moscow-friendly government to power.
Rapid-fire events: From that point forward, the World War III script unfolds in a series of rapid-fire events.
ISIS sees the distraction of the world powers as an opportune opening, jumps into the fray, and launches a series of attacks on European soil. Terrorists based in the Caucuses attack in Russia's biggest cities.
NATO and Russia hit back hard. But they also use the terrorist attacks as an excuse to escalate the East-West war.
Fighting wars also erupt in Moldova and Georgia, between Syria and Jordan, Israel vs. Palestinians, Iran vs. Saudi Arabia, China vs. Japan, and more.
Trade wars explode globally.
International cyber warfare makes it worse.
Soon, we have a World War III fought on all three dimensions:
  1. on the ground ...
  2. in global trade, and ...
  3. online.
Can This Really Happen?
Not likely tomorrow or next month. But analysts on both sides of the East-West divide seem to agree that it could happen over time.
Among them, the only big disagreement seems to be who is to blame. In Russia, they say Obama is the source of all evil. In the U.S., we say it's Putin.
But the blame game won't make much of a difference. All that matters is that, at some point in the not-too-distant future, the trends we saw last year are bound to resume:
Escalating global conflicts, wars and revolutions. A tsunami of overseas money flooding to U.S. shores. A massive shift to the highest quality, safest investments in the world. A surging U.S. dollar and falling euro.
Plus many more repercussions that are too long to list with brevity or impossible to predict with precision.
My advice: Prudently take advantage of the counter-trends while they last. Enjoy the profits in stocks and the speculative opportunities in other assets.
But never forget the winds of war and their likely consequences.
Good luck and God bless!

The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

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