The Paris Attack Aftermath

The terrorist attacks on Paris mean we need a painful rethink … The tragedy that occurred in Paris this past weekend left the globe shell-shocked. And it was a reminder of the swirling mess of geopolitical tensions that has been gaining a foothold in the Middle East for over half a century.

The attacks were one of those gray swan events that you can foresee and predict to a certain degree, but you can never know exactly when they will happen. ISIS just as easily could have attacked Saudi Arabia or destroyed a Saudi oil field. Who knows with these fanatics?

In the end, though, they achieved the fear and chaos they were counting on, as Ted Bauman pointed out last Monday. It’s something that will have a major impact on the market for some time to come, and that’s why these types of events (and I know we say this often, but it’s true) are the primary reason we counsel to own physical gold. It’s the only insurance policy in the event a financial gray swan starts to land.

But let’s put a pause on that line of thinking for the moment, because right now isn’t so much about prepping for a gray swan … it’s about how to eradicate the possibility of any more gray swans arriving from the Middle East. And to do that, we need a radical rethink.

I’ll let Jeff take it from here:

I wanted to rage today — rage against fundamentalist religious ideology that leads to events like those that saddened Paris last Friday and downed a Russian jetliner a week earlier.

But whom to rage against?

Religious fundamentalists? Those morons are everywhere. In every country. Of every religious faith. And they are so blind to their own small-mindedness that raging against them is like trying to teach a pig to sing.

Maybe I could rage at George W. and Dick Cheney — the greatest mistakes American voters have ever made. Their actions, lies and deceits directly led us to this point where the Middle East is an ungovernable nest of disaffected Arabs-turned-terrorists. Then again, the Middle East wouldn’t have been the cauldron of anger if not for the stupidity of two European diplomats — Britain’s Sir Mark Sykes and France’s François Georges-Picot — acting in the selfish interests of the West when they partitioned the Middle East after World War I along unnatural lines. Their agreement and the borders they drew are among the greatest geopolitical blunders of the last century.

But as with religious zealots, raging against the political idiots of history is pointless.

So instead, I come today not to rage, but to proffer a modest proposal to solve the world’s most intractable problem: Walk away from the Middle East.

Really. Just walk away.

Stop the bombing. Stop arming rebels in one country and government troops in another. Stop selling aircraft and armaments. Just rub our hands together and tell everyone from Damascus to Riyadh to Tehran: “Hey, it’s been bundle of laughs, but I’m late for the rest of my life … so, you know, good luck with everything.”

Because at this point the only people who can fix the Middle East were born in the Middle East.

The U.S., Europe, China, Russia — there’s not a country nor a political leader there, nor a collection of countries or political leaders, who can fix the Middle East mess. The past is all the prologue you need to know that. We’ve been at this now for well over half a century. Presidents and prime ministers and secretaries of state have all tried their hands at a solution. They’ve all failed, despite the unworthy peace prizes they’ve collected. And we’ve gotten precisely nowhere. Arguably, we’re worse off today than at any point in modern Middle Eastern history — proof offered by way of an Arab Spring that still simmers, the Syrian civil war burning hot and the rise of a violent new Islamic caliphate that spreads like an untamed cancer across lands made fertile for its growth by Western governmental tone-deafness.

We can do nothing more at this point. Arabs hate Jews. Jews hate Arabs. Persians and Arabs hate each other — and both want the Jewish homeland expunged from the Earth. When they’re not pissed at the Jews, Sunnis and Shiites are happier killing one another than finding a way to coexist in the same religion. Governments hate the people and the people despise the governments, largely because all Middle Eastern governments are illegitimate, kleptocratic, oppressive, dictatorial and too often supported by hypocritical Western governments (i.e., Washington, D.C.) that tolerate crimes against humanity because oil, apparently, exceeds people in importance.

We cannot fix this because we fundamentally do not understand the Middle East. If we did, then the Baby Bush administration would not have unleashed the demons it unleashed by waging a war built on cultural ignorance, intellectual arrogance and fabricated intelligence.

Thus, we have reached the moment where it’s time to stand down.

Like an uncontrollable forest fire, sometimes you just have to back away and watch as the thing burns itself out. It will be painful. There will be blood. How much blood and how much pain is, and should be, entirely a function of Middle Easterners. They can kill one another and bathe their deserts in claret until just one tribe or one religious strain remains … or they can come together and work out their problems, redraw national borders along logical tribal and religious boundaries, and learn to accept that some people — even other Muslims — see religion and law and life differently … and that it’s OK.

The pain, of course, won’t reside entirely within the borders of the Middle East. It will engulf the world, at least for a while, because of the impact a Middle East in flames would have on oil prices. But that’s part of the cure, after all.

Call it tough love — or, maybe more accurately, tough indifference.

Excessive oil prices will dramatically increase global investments in alternative energy sources. That will serve several masters. It will increase employment in new technologies and new infrastructure. And it will hasten the reduction in demand for Middle Eastern oil, and that reduction will fall so sharply that we will never again have to concern ourselves with which autocrat to back or which version of Islam to support. The Middle East at that point will hold about as much interest as French Guiana.

Higher oil prices will also unlock just shy of a bazillion barrels of oil here at home. The U.S. Energy Information Administration reports that America has beneath her lands something close to 260 billion barrels of technically recoverable oil, and more than 2.2 quadrillion cubic feet of technically recoverable natural gas. At the right price, a lot of those reserves move from technically recoverable to actually recoverable. Russia has a bundle of technically recoverable oil and gas as well. Same with China; it has more technically recoverable shale gas than any other country.

The point is that a Middle East in flames pushes oil prices higher temporarily, and those higher prices unlock energy reserves elsewhere in the world to replace lost production on the Arabian Peninsula, North Africa and Persia — that is, until the renewable sector takes over.

At that point, oil crashes completely and forever. Entrenched kings and kingdoms and dictators lose all hold on power because they have no oil income to support their power. With no one paying attention, and without Western governments interdicting to protect oil interests that no longer exist, legitimate leaders will emerge in the Middle East through the process of civil war or peaceful negotiation.

So the absolute best response we can muster to the attacks on Paris, on Russia, on Madrid, on London, on 9/11 … is to simply walk away.

There is an ancient Arabic saying: I against my brother; I and my brother against my cousin; I, my brother and my cousin against the world.

World leaders should take note of that. Back away so that no longer do any reasons exist for disaffected Arabs to attack the world. Leave them to attack themselves until we reach a point where they’re no longer relevant to anything the world needs.

In the Sovereign Investor portfolio … Tallink (Estonia: TAL1T, buy up to €1), our Baltic Sea ferry operator, saw its passenger load increase by 5.5% in its third quarter — a big reason for the company’s 25.1% surge in net profit. In its earnings report, Tallink also noted that ship renovations and upgrades have helped sales jump up despite an increase in competition.

As we’ve been saying, these costly remodels and adjustments to Tallink’s operating routes are ultimately benefiting the company — so that means we’re in a great position to profit.

Jeff originally recommended Tallink to capitalize on the rising prosperity of the Baltics. Even though Tallink is a ferry operator on the surface, its ships are actually floating malls filled with duty-free shopping, which attract customers throughout Europe. In fact, its largest customer base comes from Finland and Sweden — two of the most prosperous nations in the world.

The stock trades at just 8.2 times this year’s earnings and remains a buy up to €1.

Eni SpA (NYSE: E, hold), our Italian-based oil and gas giant, continues to be hit by lower oil prices, as do all oil-dependent companies. But, despite these challenges, it has been able to discover new resources.

Most companies have cut back dramatically in exploration and development, but Eni has more than doubled its resource target after a 1.2 billion barrel discovery. It unearthed another 250 million off the coast of Congo just a few weeks ago.

These discoveries are going to generate significant returns once the price of oil rebounds. And oil will rebound soon; it’s just a matter of time now. As Jeff mentioned above, now oil’s rise has even more of a catalyst.

Our position is up 78% at the moment, and shares remain a hold.

In dividend news … Vodafone (NYSE: VOD, hold) is dropping roughly $0.06, depending on the exchange rate, into your account on February 3. Goldcorp (NYSE: GG, buy up to $20) is paying us its monthly dividend of $0.02 on November 27. Silver Wheaton (NYSE: SLW, buy up to $21.59) is paying us $0.01 for the quarter on December 1. And Archer Daniels Midland (NYSE: ADM, hold) is paying us its $0.28 quarterly dividend on December 9.

Until next week,

Jessica Cohn-Kleinberg
Managing Editor, Premium Services
November 22, 2015