Thursday, February 08, 2007

Divide Up Iraq: The Get Rich Quick Scheme

The rising tide of bad news regarding Iraq seemed more like a tsunami yesterday. NPR covered the following stories:
Current thinking regarding Iraq is now saying that we'll need to chop up the country into at least three parts. I admit I've said as much in this blog. I mentioned it as the inevitable conclusion to our debacle. Now conservative investment newsletter writer Ned Humphrey says this in a recent post. To his credit, he does not see this is an easy or safe solution, in fact he sees more and more conflict ahead:
The trouble with this option is there would be no way to control the outcome after the division, any more than we could stop the looting after Saddam was toppled. There are substantial minorities of Sunnis in the Shi'a areas and vice versa. Baghdad is thoroughly mixed and would need to become some kind of internationally protected city-state, as the prospects of disentangling its mixture of residents is about as likely as the Pope converting to Islam.

And the Turks would definitely not be happy with the idea of an independent Kurdish state at their back, as that country's own ethnic Kurds would immediately want to join their brethren and cast off the yoke of Ankara.
The basic problem is that Iraq is not ours to divide, either from a moral or tactical perspective. America will not ultimately decide the fate of the Iraqi conflagration that it started. It is far more likely that Iraqis divide their country themselves, Yugoslavia-style, or with the so called help of Iran or Saudi Arabia. No one knows how the civil war will play out. But America will not be making the decisions.

Humphrey unfortunately goes on to suggest that Americans can make the best of a bad situation by investing in military stocks! I have to say this is a terrible idea, not just from a moral perspective, but also from financial one. The whole "who cares if we are losing Iraq as long as the S&P 500 is going up and gas is cheap" attitude, prevalent these days, astonishes me. Don't Americans know what it means to lose this war? It means we are going to have a market crash and massive inflation. Nations do not get rich by losing wars. Nations rarely get rich by winning wars for that matter. Nations can get rich by looting vanquished nations though, and Iraqis might well conclude that such is our intention, consistently supported by our actions from the beginning. When it come to nations, believe actions, not words.

We are paying some two hundred milllion dollars a day to lose this war. Of course a lot of that will go into the fat-margin profits of corporations like Halliburton, and other "security contractors" and armament manufacturers (one of Humphries' favorites is Force Protection Inc, a vehicle armoring firm) . And maybe the nominal price of stock in those corporations will appreciate. But it will not keep pace with inflation. Not by a long shot. I don't really have data or links to back this up, just a rationale and a hunch. War=inflation. That's the short version. During, and especially after, the Vietnam war we had huge inflation in America. It is coming back now. Britain had disasterous inflation after the second world war, even though they were on the winning side. Iraq was invaded largely to "secure" their oilfields. Now that oil is anything but secure, and that is sure to create inflation. Oil and the fate of our dollar are closely tied together.

I have another reason for not believing military stocks are a good investment (besides the immorality of war profiteering). I don't think there is a culture of honesty in the American corporations these days, and expecially not in corporations whose only customer is the US goverment. The system is rotten to the core. If there is money to be made it is not likely to trickle down the shareholders. I don't believe these are times to buy stocks. Stocks will peak this year and trend down for a long time. Just buy gold or silver instead, OK?