It is perfectly understandable that media focuses nearly exclusive coverage on Japan. TV works that way. We fully appreciate the concern about Japan. We have written about it several times. In addition, we have taken our Japan investment exposure to zero.
Meanwhile, the Middle East and North Africa (MENA) continue to boil and the temperature there is rising. We remain over weight oil and energy. For many weeks we have repeated the mantra that “This is not over.” It is still not.
Geopolitics are complex in MENA. Bahrain is the present intensifying vector. Libya is a close second. Yemen is boiling over. Egypt has receded from view.
The twenty MENA regimes must be viewed idiosyncratically. Some are not visible, since social-media and public news reporting is controlled or eliminated. Note how there is only silence coming from state-controlled Iran and Syria. These two are killer regimes led by consummately evil and dangerous heads of state. They are joined by other “evil axis” members like Iran’s supplier, North Korea (now empowered by Japan’s tragedy) and erstwhile MENA peace broker, Venezuela (now empowered by higher oil prices).
Global shocks are revealing fissures in the mature Western economies. Such weaknesses crop up when societies get older, fatter, and deeper in debt. In part, this is the result of failings in their political structures. We see that happening in the US as the polarized Congress continues to disappoint its citizens.
NightWatch (www.KGSNightWatch.com ) is a daily research service. It is sharp, informative, and speaks plainly. There is an impressive skill set at work in assembling and reporting its views and offering interpretative statements about events. Here is their March 13 summary conclusion about MENA and the situation in the region. We will quote without editing.
“The general theme in the weekend protests is the youth movement appears to be fading. It claims credit for forcing two heads of state to resign, but that was actually intra-palace politics involving the armed forces. Libya's counter-revolution has encouraged all the tough-gut, hard-line regimes to stand firm. Thus far, there are no revolutions.
In instability theory, the side with the most guns, including bullets, always wins. Libya is proving that point once again.
Some governments have made promises of modest political reforms, but even Egypt appears to be making only cosmetic changes by amending the constitution. All governments have regrouped and recovered. All promises are reversible. The movement appears to have peaked and does not look sustainable.
Some implications. First, the Arab youth lacks leadership, insight and planning. It poses no threat to anyone except itself. Western education and exposure made young Arabs feel uncomfortable without providing any practical sense about how to carry off a revolution or move for more changes that are acceptable. Modern technology seems to have tempted young Arabs with illusions of invincibility that provide no protection against real bullets.
The western democracies are out of energy and idealism for now. Having spent vast resources for modest results in the past decade in Iraq and especially Afghanistan, they are not inclined to get involved with the Arab youth. Western pressure is no threat to authoritarian regimes in Muslim countries, aside from insipid statements about unacceptable behavior and feckless sanctions. Qadhafi's vengeance on the rebels will be limited only by his own and his western-educated children's imaginations, provided they win.
The message thus far is a strong preference for (stable) regimes, regardless of their illegitimate antecedents and disreputable histories. Even governments that are the products of revolution have proven suspicious of and hesitant to deal with revolutionary movements.
The youth exposed vulnerabilities that wiser, more sophisticated enemies will exploit in the future. The Islamists, for example, will have obtained a better sense of the vulnerabilities of the authoritarian regimes and their strengths. When they make their move against the kingdoms, they will have benefited from the pending failure of the youth movement.”
As we continue to assert: “This is nowhere near over.”
David R. Kotok, Chairman and Chief Investment Officer
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