Weekend Strategy Review September 31, 2013

Posted by professor  at September 1st, 2013

This weekend, as we await Obama’s decision to attack Syria, a new question is popping up.  Do we have the funds to do it?  Are you kidding me? 

It appears that the Pentagon is starting to push back at the Administration, after the tens of billions of dollars of defense cuts it has experienced under Obama.  Some flag officers are saying they are unable to pay for the attacks from current operating funds and must seek additional money from Congress.  Say what?

Now I know the military does not want any part of this fight, but to tell the Prez that they won’t go because they’re broke not only sends a message to Mr. Obama, it tells the America people and the rest of the world about the state of our country.

Hey, the decision to punish a guy for using chemical weapons against his own people is one thing.  And whether we should do something about it when nobody else seems to care is another.  But not having the money to do it is an entirely different matter,

The administration is talking about an air strike using 100 to 200 TLAMS.  At a million bucks a missile, that’s 200 million dollars plus the cost of the ships to launch them, so we’re talking $1-2 billion tops.  

If Syria or Iran counter our attack, and larger-scale military operations are required, it would cost hundreds of millions or billions, depending on the number of forces and the duration of the operations.  If we had to maintain a no-fly zone over Syria it would cost about $1 billion per month, and IF we got into the cost of using special operations forces to control chemical weapons, that’s about another  $1 billion monthly.  You will get to pay for all of this.

But right now, we’re only talking $2 billion.

To put things into perspective, during the first term of Obama’s administration, they cut $487 billion from defense spending and another $55 billion as part of during the sequester legislation. An additional $55 billion is planed to be cut next year.

So coming up with $2 billion for an attack doesn’t seem to be much.  It’s pocket change. No, the flags are balking for other reasons.  Reasons that you should be concerned about too..

And these reasons impact my Big Picture Strategy. To tell the truth, I’m still not sure how the events of the next few days will impact this strategy.  Nobody does.  But like I talk about in my Classes, when you spend about $100 Billion more each month than you take in, it creates a $1.2 Trillion deficit each year.  And to fund this deficit you need to borrow money, mostly from the Chinese.  And right now, the Chinese, the same guys who are lending us money to keep our government running, are opposed to any attack on Syria.  And just like the Russians, they too sit on the UN Security Council, and have veto power of any resolution to use military force against a member nation.  So getting approval for any attack on Syria starts to get complicated.

Also, from a Big Picture perspective, when any government’s debt starts to exceed the 1:1 ratio of debt to GDP, it brings into question why anyone would to buy its Bonds.  And right now, our debt is over $16.9 Trillion, with a GDP of only $15.8 Trillion.  So we’re at 1.066 Debt to GDP.  In other words, we’re broke!   And when you’re broke, it’s usually a good idea to stop spending.  People know this, flag officers know this, but sometimes politicians don’t.  Look what happened to Greece when they exceeded the magic 1:1 number.  Do you see anybody rushing out to buy Greek bonds?  Or those of Spain, or Italy?   Makes you wonder why China still wants to buy our Bonds.  They have more than enough already.  Just on the basis of debt to GDP alone, one would have to question why the Chinese would want to buy more Bonds to help run our government.  And IF the Chinese stop buying our bonds, the budget that the Pentagon is looking at now will become even smaller.  A lot smaller!

Over the past year, the Chinese have been hinting that they might want to do other things with their money.  They have been very active buying mining sites and oil interests in other countries.  They like commodities and could be looking for a reason to stop buying U.S. paper?  And IF China really  wanted to send Obama a message, this would be one way to do it.  Trust me, hitting a country in the pocketbook is a far more effective strategy than hitting it with a few missiles. 

I hope that Obama and company are thinking about some of these things, before they decide to launch missiles.  Forget  about what Syria and Iran might do to Israel if we attack.  What I’m worried about is the potential of ticking off China.  If they decide to stop or slow down their bonds purchases because of an attack, the impact to us will be a lot worse than a few hundred TLAMS striking abandoned targets in the desert. And If the post strike events start to get out of hand, and the military conflict starts to escalate, it could change the current wave count and start the next Major Wave down.

Right now, The Professor, The Dean and the PT indicators are all negative.  But we appear to be very close to a wave 2 bottom.  If the ‘Syrian cloud’ over the markets disappears, we should start the next wave up.  It could be a good one.

Let’s hope that cooler heads prevail in the days ahead.

Have a great Labor Day Weekend.

That’s what I’m doing,

h

FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.