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July 17, 2006

Three War Forecasts
by Martin Weiss

Money and Markets

Anthony and I are in Brazil to attend my nephew's wedding. We fly back tonight.

When I planned this trip, I welcomed it as a chance to get away for a relaxing weekend -- to escape the daily bombardment of news about Iran, Iraq, Gaza and Lebanon.

Instead, it feels as though we jumped into the thick of the melee: vicious, coordinated attacks by criminal gangs throughout the state of São Paulo.

From the moment we stepped into our taxi at São Paulo's airport, the driver talked incessantly about nothing else: Scores of municipal buses torched. Dozens of police stations and public buildings bombed. Shopping centers, auto dealerships, parking lots -- all trashed.

As we sped down the highway to the city, he ranted excitedly, turning his head in our direction to punctuate each sentence. My first thought was to tell him to pay more attention to the road. My second was to question his sources. But both thoughts were wiped away by what happened next.

A billowing column of smoke darkened the brightly lit city skyline just ahead. Within seconds we could see its source on the other side of the median -- a large city bus consumed by flames that leaped three stories into the air.

Had it been I-95, traffic would be backed up for miles in both directions. But on Brazil's highways, unless lanes themselves are blocked, no one slows down. The bus had been pulled off to the shoulder. Police cars and fire engines, stretched thin by the other attacks all over town, had not yet arrived. So traffic flowed uninterrupted and we zoomed by with no delay.

But I was in shock. This was obviously no longer the same, tranquil, nonviolent Brazil of my childhood. The bustling cities of Brazil's most prosperous industrial state have been infected by a single, underlying disease: Coordinated violence. Inexplicable destruction. Senseless bloodshed.

Thank God most of the gangs here are not targeting human life; they shoo all the passengers off each bus before torching it. And thank God, after 48 hours of havoc, the gang leaders called off the attacks just as abruptly as they began.

But what's coming next? And what lessons can be learned from this apparently inexplicable event?

7 Critical Lessons for
American Investors

To you, what's happening in São Paulo may appear irrelevant of distant. But nothing could be further from the truth.

First, violent, coordinated attacks are a worldwide phenomenon: France, Britain, Spain. The Levantine, Central Asia, the Indian subcontinent. In each case, the political agenda may be different. But the strategies and tactics are too similar to ignore.

This isn't the first time we've seen tactics prevail over ideology. The same thing happened three decades ago when student rebellions spread across the globe from Berkeley ... to the Sorbonne ... to Tokyo and Pusan ... Caracas and São Paulo. Each rebellion had different goals. But all readily implemented copycat tactics.

Second, most police forces are hopelessly unprepared. The attacks are coordinated with military precision. Only an equally coordinated army is capable of fending them off.

Third, the economy is paralyzed. In São Paulo, municipal buses stopped running, two million commuters were left stranded and business was virtually shut down. We saw the same thing happen in New York, London, Madrid and Mumbai.

Fourth, violence itself can easily catch fire like a raging epidemic. Once it erupts in one major metropolis, it often spreads to others in the region. We saw this in France last year. We see it in Iraq every day. And this past week in the state of São Paulo, it was abundantly evident as well.

Fifth, despite all the risks, as long as it doesn't affect their daily lives directly, most people are inclined to plod through their regular routines as if nothing were happening. We're equally guilty of this pattern. After the first day of the São Paulo attacks, we went out to dinner in an upscale neighborhood. After dinner, we dropped Anthony and his friend at a club. São Paulo's vibrant night life seemed unaffected.

On the surface, this may sound reassuring. But in reality, it's a symptom of another troubling aspect of this phenomenon. As the crisis escalates step by step, most people become inured, consoling themselves in the belief that "it couldn't possibly get any worse."

And alas, it's that complacency which often helps opens the door to each new phase: First, attacks on strategic economic targets ... then military targets ... and ultimately "soft" civilian targets without regard to human life.

Sixth, when an insurgency, a rebellion or a war reaches critical mass, military goals come first regardless of any impacts on economic infrastructure or financial markets.

In Iran, president Ahmadinejad and Ayatollah Khamenei knew that their nuclear gamesmanship would hurt exports and slice points off their GDP. But their long-term geopolitical goal -- to lead the Muslim world -- prevailed.

They also know that if they follow through on their recent threats to choke off the supply of oil to the West, it could gut their own oil revenues. But their geopolitical objective -- to retaliate against any UN sanctions -- will take precedence.

Similarly, Hezbollah, the Shiite terrorist organization in Lebanon backed by Iran, knew that their recent attacks against Israel could trigger a new war, plunging the already-impoverished Shiites into deeper misery. But that, too, was irrelevant when the next Israeli targets were being selected.

For its part, Israel knew that invading Gaza and bombing Beirut would be bad for the regional economy, itself included. But again, political and military objectives have taken precedence.

So don't expect military strategists in Tehran, Tel Aviv or Washington to hold back because they're worried about what it might do to your investments. They will strike first and ask the economic-impact questions later.

Larry, Sean and I Have
Been Warning You About
This for Many Months

Last year, Larry was among the first to warn you about an inevitable conflict among Iran, Israel and the U.S. He told you it would help drive the price of oil to $70, $80 and $100. And he showed you how to protect yourself with select energy investments.

Sean has long been warning you about the international competition and wars over natural resources of all kinds, especially energy, as the world approaches the inevitable state of "peak oil" -- when oil fields are depleted and production levels begin to decline.

Likewise, I was among the first to warn you about the rise of Hamas in Palestine ... about a spreading Shiite-Sunni war ... and about the looming dangers of Iran-sponsored Shiite forces in Lebanon and elsewhere.

Now look how the world has changed! And seriously consider our forecasts of were we might be headed:

Forecast #1
War with Iran

Israel and the U.S. are so close to an outright war with Iran you can almost smell the gunpowder:

For many months, the Iran-financed Badr Brigades in Iraq have been on a rampage, tearing apart the already-shattered fabric of civil society;
Last week, the Iran nuclear crisis was referred back to the UN Security Council, the latest in a chain reaction of escalating events that could lead straight to war; and
Just this weekend, the Iran-backed Hezbollah has already declared war on Israel.

So this is not a single brushfire that can be put out with negotiation or mediation. It's the kind of multi-level, multi-nation conflict that typically leads to all-out war.

Consequence: In the wake of lesser conflicts of the last century, oil prices doubled and tripled. If that happens again today, $100 per gallon of crude could be cheap.

Forecast #2
Partitioning of Iraq

No one wants to talk about it. But Iraq is on a collision course with partition. And like the India-Pakistan partition of over a half-century ago, it's unlikely to happen without widespread destruction of the regional economy.

A new nation, Kurdistan, will emerge in the Northwest, allied to the U.S. but controlling only a small fraction of Iraq's productive oil facilities.

Another new nation, a Shiite Islamic Republic, will emerge in the South, closely allied to Iran, and in full control of 80% of Iraq's oil production, plus 100% of its access to Persian Gulf shipping routes.

A third nation, in the center, will remain divided between Shiites and Sunnis, continually torn by civil strife.

And with the exception of Kurdistan, the U.S. and its allies will be powerless to influence leaders or steer events.

Consequence: Still higher oil prices.

Forecast #3
Radicalization of Muslim Populations in
North Africa, the Persian Gulf, and Asia

With surprising speed and breadth, the politics of vast Muslim populations -- stretching from Morocco in the West to the Philippines in the East -- is shifting toward a radical, anti-Western, activist ideology.

You got a taste of this earlier this year when a Danish newspaper published cartoons depicting Allah. You saw how Muslims protested, rioted, or rampaged in dozens of cities on every continent except Antarctica.

Needless to say, that was not just about cartoons. It was a symptom of a much deeper malady that has been incubating for decades throughout most of the Muslim world. I'm talking about ...

A gaping socio-economic divide between the impoverished masses and the few beneficiaries of oil riches;
A deep cultural schism between traditional Islamic values and the lifestyles of Westernized urban elites; plus
Political participation, which is, at best, a joke, and at worst, impeded by a Big Brother system surpassed only by Saddam's.

This is the powderkeg that's now exploding. And the lighted fuse is the all-out war between Israel and the Iran-backed Hezbollah, declared just this weekend.

Most important, never forget what lies below the same lands where these conflicts are now exploding: Over two-thirds of the world's oil reserves.

It's Not Too Late
For Protection and
Profit from this Crisis

We've been continually urging you to take concrete steps to protect your investments.

If you've done so, we commend you for your foresight. By the same token, if you haven't, we can't blame you for your inaction. Nearly all of Washington and all of Wall Street have been doing their utmost to downplay the gravity of the spreading crisis.

In this environment, our first role is to make sure you're aware of the dangers. Our second is to guide you to steps that can help protect you from the consequences.

Investment profits are part and parcel of that protection. So brush aside any feelings of distaste you may have about the idea of profiting from unfortunate events. To exclude profits from your strategies does no good for anyone -- let alone for you and your family.

That's why all of us at Money and Markets have been so insistent on bringing profit opportunities to your attention.

My recommendation: Take full advantage of the investment ideas you find here at no cost. And if you want to go beyond those, take advantage of the specific instructions and higher leverage opportunities in our paid-for services.

But above all, be sure to keep most of your money safe and in conservative investments.

A Final Word

It's early Monday morning, and I'm at my brother's home in Brazil's futuristic capital, Brasilia. Except for the bem-te-vi chanting much like they do on our farm and the distant sound of cars on a high-speed avenue, the only sound I hear is the tic-tack of my own laptop.

The family and the children are sleeping. They were up late last night talking about old times. Here, finally, hundreds of miles from São Paulo and thousands from the Middle East, I have found the peace and quiet I was looking for.

It reminds me that the cup is half full. There are still major investment opportunities -- sometimes despite the crisis, sometimes because of it.

Prime examples: Ethanol from sugar cane and the technology needed to best exploit it, pioneered here in Brazil. Or nuclear energy and the uranium needed to power it, mostly in Australia.

For more details on investments to buy right now, I refer you to our website at www.moneyandmarkets.com.

Click back to the recent archives, and look at what Larry and Sean have been writing day after day, week after week. With the outbreak of a new war in the Middle East and the real likelihood of a region-wide conflagration, their strategies are even more valid today.

Also, be sure to check your box Wednesday morning, when Sean plans to give you the latest on uranium. With oil now at $80 per barrel, a lot has changed just in the past few weeks.

Good luck and God bless!

Martin

Martin Weiss, Ph.D.
Editor, Safe Money Report
support@martinweiss.com

For more information and archived issues, visit http://www.moneyandmarkets.com.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.