The Global Economy is Watching ISIS
Politics / Global Economy Sep 06, 2014 - 12:56 PM GMTBy: Harry_Dent
The biggest news topic in our global economy now centers on the growing threat from ISIS. They are well-funded, well-organized and brutal. Their on-the-ground army in Iraq and Syria and their extremely violent actions have the world on edge.
After the beheading of two U.S. journalists, Obama has said that the objective is clear: “That is to degrade and destroy ISIS.”
The world’s Geopolitical cycle is heating up. And it doesn’t bode well.
Currently, the stock market is largely ignoring these risks… and I believe it’s just a matter of time before they get a very rude awakening. There are much worse demographic trends ahead and higher debt than what was experienced during the global financial crisis of 2008.
I added the Geopolitical cycle to my hierarchy of key cycles in early 2006 when the roaring 2000’s bull market did not end up being as bubbly as the 1995 to 2000 tech bubble. Every 18 years or so, stocks and the general economic environment wax and wane, they go bullish and bearish and shift from favorable to unfavorable.
The last cycle with a favorable geopolitical environment with no major wars or inflation shocks was from 1983 to 2000.
Then the world changed on September 11, 2001…
How Wars Affect Our Economy and Markets
Soon after 9/11, we began our ill-conceived retaliation with the Iraq war. Then we entered another, more justified war when it was discovered that Afghanistan was harboring al-Qaeda. But both wars cost us a lot and accomplished little. When we had to pull out, the terror and fringe groups just moved right back in and took over.
Obama recently said at a fundraiser that the world is safer than it was 20 years ago… it sure doesn’t look that way to me.
All we have to do is look at the unrest in so many places. The Arab Spring moved from Libya to Tunisia to Egypt. The Syrian civil war is still raging. The Gaza Strip was pounded during the 50-day war between Israel and Hamas. And let’s not forget North Korea doing one stupid thing after the other, especially with the holding of three U.S. citizens on ridiculous charges.
More recently, we have the invasion of Crimea and Ukraine by Russia.
It’s hard not to see ISIS as the greatest potential threat in the Middle East right now. And its sights blatantly target those of us in the west. Our cities have become potential targets for terrorist attacks considering the concerted recruitment efforts by ISIS in both the U.K. and the U.S.
Minneapolis is now a hot spot for ISIS recruitment of American converts. They hone in on disenfranchised young men and women who are confused and lost between their Muslim and western identities.
Not only is the Middle East boiling over, but Putin is actively thumbing his nose at the entire world. He shows clear intentions of bringing Ukraine and other regions back into a new militaristic Soviet state. And we can’t forget that Russia is still the second-greatest nuclear force after the U.S.
Any alliance that forms to battle ISIS will not only be made up of the U.K. and other western allies but by many Arab states as well. Saudi Arabia, Iran, Egypt and Turkey… they all see ISIS as a major threat. Could we possibly see long-standing warring nations band together against a common enemy?
Time will tell…
All of these events feature prominently in this powerful Geopolitical cycle that is playing out and it will continue to point down into late 2019 or early 2020. These Russian threats, civil wars and Islamic/West conflicts are only going to continue and get worse over the next five years or so before this cycle finally turns positive again around 2020 moving into 2036 to 2037.
When you have a mound of sand and you begin dropping grains on it one by one, you can really never tell which one will cause an avalanche, but it will occur. And when the odds increase, the steeper the mound becomes.
This stock bubble is getting very steep and the possibility of an avalanche is growing.
For those investors with passive 401(k)s, IRAs or retirement brokerage accounts, look into selling stocks on every rally in the weeks and months ahead. It’s better to be a bit early rather than a bit late in getting out.
The first major drop when this bubble finally bursts is likely to be quick and violent. And you don’t want to get buried.
Harry
Follow me on Twitter @HarryDentjr
Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.
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