What Happens If We Don’t Go to War?

March 4, 2003

IN THIS ISSUE:

1. Implications If We Do Not Go To War.

2. Turkey Is Out – Where Do We Go Next?

3. How The War Is Likely To Play Out.

4. Three Keys To Why War Is Imminent.

5. Market Implications – What To Do Now.

Introduction

Whenever you write a weekly communication to apprx. two million people, as I do, there will be those who strongly agree and those who strongly disagree, plus all those in between. Some weeks I get hundreds of e-mails from readers of this letter. We do our best to answer them all, but responses may be delayed a week or two on the heavy weeks. I am confident this will be another heavy e-mail week due to the topic I discuss below.

Virtually everyone is speculating on whether the US will attack Iraq and when. Many people believed the war would begin last weekend due to the new moon, but it didn’t. Others believe that if we can’t deploy forces through Turkey, Bush might call off the war, especially with time running out.

I happen to believe, as discussed below, that the US will attack Iraq very shortly, probably in a matter of days. In this issue, however, I would like to begin by talking about what would likely happen if the US does NOT attack Iraq.

President Bush Must Decide

Last week, I discussed how President Bush is in a bad situation. He still doesn’t have a new UN resolution. Turkey isn’t cooperating. Time is running out. By mid-April, dust storms are frequent in Iraq, and the temperatures will be prohibitive for wearing “haz-mat” suits. A decision must be made ASAP.

We can agree or disagree over whether or not we should go to war with Iraq and remove Saddam Hussein. At this point, I happen to believe we should. I haven’t stated my position on the war clearly or formally before, so this means I will get hundreds of e-mails from those who disagree.

[Editor’s Note: If you send me an e-mail simply to disagree with me, and tell me all the reasons we should not go to war, I will not answer them. I know the “go” and “no-go” arguments on both sides of this critical and highly-charged issue.]

What Happens If We Don’t Go To War

One of the main reasons I believe we should remove Saddam, at this point, is what would happen if the US decided now to abandon the war. There are those against the war mainly because it could spark widespread terrorist attacks in the US. I have never believed this notion. I believe that if al Qaeda or other terrorist groups had the ability to strike us, they would do so immediately. They wouldn’t wait and risk being caught, in my opinion.

As I will discuss below, I believe the odds for more serious terrorist attacks will INCREASE if we do NOT go to war. Let’s examine this scenario. For whatever reasons, let’s say that Bush decides in the next few days that we will NOT go to war. Let’s just imagine what would happen next.

1. Al Qaeda is emboldened. Al Qaeda has long believed the US is a “paper tiger.” Yes, the US will go into limited military actions such as Bosnia, Kosovo and Somalia, largely with air power, but not a real war where large numbers of troops are actually at risk. Even our victory in Afghanistan did not impress al Qaeda. If Bush were to back down now, it would be cause for a grand celebration by al Qaeda and terrorists around the world. This would be the proof, they would proclaim, that the US is indeed all talk and no action.

Let us also not forget that Iraq has weapons of mass destruction, and if Saddam is left in power, he might sell the WMDs to terrorists, if he hasn’t already. I believe if we were to back down now, the terrorists would be emboldened, and the threat of more serious attacks on the US will increase, perhaps significantly.

2. Saddam would dominate the region. Can you just imagine how Hussein would feel if he backed down George Bush and the United States, not to mention Tony Blair and the Brits? Can you imagine the publicity? He would instantly become the dominant leader in the region. He would resume his production of weapons of mass destruction.

If the US backs down, it is all but certain that Saddam would increase the genocide, particularly against two ethnic groups, the Kurds and the Marsh Arabs, which has gone on for more than 20 years. It is still continuing. If Saddam survives as Iraq’s leader, he can be expected to significantly increase the killing, as happened after 1991.

3. The message to North Korea. As a member of Bush’s “Axis of Evil,” North Korea is another major threat. In recent months, we have learned they have nuclear weapons. On February 24, the day Colin Powell visited South Korea, North Korea test-fired a new “surface-to-ship” missile. Clearly, this was a message from Kim Jong Il that North Korea intends to continue developing such weapons. On Monday, there was a mid-air confrontation with a North Korean jet and one of our military aircraft.

Should the US back down on Iraq, the North Korean leadership would also be emboldened. They would conclude, “If the US backs down from Iraq, they certainly won’t come knocking on our door.”

4. Political implications for Bush. If Bush were to call off the war at this point, he would alienate much of his conservative base. It could cost him the presidency. Would his opponents who are currently criticizing him on the war sing his praises if he backs off? Certainly not! They would just intensify the “dumb cowboy” refrain.

I think these and other implications of not going to war with Iraq are at least as compelling as the reasons to go to war.

Talking Turkey

Many in the mainstream media have suggested that Turkey has dealt the US a major blow regarding any planned action in Iraq. Some would even have you believe that Turkey’s refusal to allow offensive operations on its soil has blunted our effort in Iraq totally. Well, don’t believe that.

Since the Turkish Parliament voted against US deployment, their stock market plunged apprx. 12%, and their currency has cratered so far and so fast that their national bank may have to step in to avoid a financial crisis. Why? Well, the $26 billion in cash and loan guarantees the US promised to Turkey are now off the table. No troops, no money. (What great allies we have.)

Some are speculating that Turkey will have another vote, especially in light of the markets’ reaction to the first vote; however, that remains to be seen; and the US doesn’t have time to wait. The fact is, US troops don’t have to be in place in Turkey for action against Iraq to start.

Where To Now?

Some military analysts believe the US ships and troops positioned near Turkey will have to move south through the Suez Canal, around Saudi Arabia and into the Persian Gulf. Reportedly, the 101st Airborne Division’s equipment is already moving in that direction. The problem is, this takes more time, and the Gulf is already crowded. At least some of our troops need to be in position sooner.

Don’t be surprised if the US convinces Jordan to step up and take Turkey’s empty chair. It is not out of the question that our ships carrying the troops and equipment offload in Israel and move across Jordan. A second front from the West, instead of the North, is not ideal, but it will do according to my military sources.

Another theory is that, in the absence of the 101st in the North, Turkey will use its own military and control the northern region of Iraq. Turkey cannot allow the Kurds in northern Iraq to take control. If this theory is correct, the US may not need forces in northern Iraq in order to prosecute the war. On the other hand, relying on the Turks has its own set of problems and risks.

Unprecedented Naval Deployment

There are currently five US Carrier Battle Groups on station in the Gulf region. The USS Nimitz and her group left San Diego on Monday. That will make six Carrier Battle Groups in the Gulf. That represents hundreds of ships and an awesome amount of firepower, as well as an unprecedented deployment of American naval power.

When the war begins, expect a major air and smart weapons phase that lasts a few days at least. The only ground troops that would likely be used in the initial phases of the conflict would be the 101st Airborne Division, the 82nd Airborne Division and various Special Forces units, some of which are reportedly already operating in Iraq. The purpose of these troops would be to secure the oil fields and prevent Hussein from torching them.

The Ground War

It seems clear that Saddam is positioned to fight the war in Baghdad. I have linked below a very good story from today’s New York Times (International) which states:

“Saddam Hussein's decision last week to move the Adnan Republican Guard division from its base near the northern city of Mosul toward central Iraq has provided the final clue. If attacked, the Iraqi leader does not plan to mount a determined defense of his borders. He plans to make his stand in Baghdad, playing the starring role in a drama that is designed to portray his regime as a victim holding out against an advancing American Army.”

If you would like to learn more about what the ground war might look like, read the rest of this interesting piece on Iraq in SPECIAL ARTICLES below.

It would appear that Saddam has decided to concede his borders and concentrate most of his forces in and around Baghdad. It also appears that it will be largely American troops who will fight the war in Baghdad.

The Question Is, When?

Unless a major, unexpected development occurs, I believe the war will begin very soon, perhaps just days. Several developments over the last 48 hours make me believe this.

First, news out just this morning is that US troops have taken over the operation of the Patriot anti-missile batteries in Israel. This is significant. Plus, it is also reported today that the US has given Israel a new, advanced “early-warning system.”

Second, it was reported on Monday that Saddam is moving missile launchers into position on the Kuwaiti border. This equipment reportedly can launch missiles at all major Kuwaiti cities AND our troops. If true, the US won’t stand for this.

Third, Hillary Clinton threw her support behind Bush and the war on Sunday. After criticizing Bush for months for his policy on Iraq, her office issued the following surprising statement on Sunday:

“Sen. Clinton fully supports the steps the president has taken to disarm Iraq of weapons of mass destruction,” said Clinton spokesman Philippe Reines.

What this latest surprise flip-flop tells me is that Hillary has been advised by the White House that the war will begin very, very soon. And at the last moment, she wants to go on record as supporting what could (emphasize could) prove to be a very successful and very popular war.

Market Implications

Ditto from last week. Stocks and mutual funds continue to drift lower on war fears. The equity markets are very oversold; consensus opinion is quite bearish now; and thus the markets are ripe for a turnaround. As I have stated for weeks, I believe this will be the best buying opportunity of the year, assuming the war goes well. Unfortunately, no one knows the exact timing for such a reversal.

Treasury securities remain very popular and continue to rise, also due to war fears. Many investors move more money into Treasuries in times of uncertainty. But if the war goes well, Treasuries could decline in value, perhaps significantly, in the months ahead. I would use the recent strength in Treasuries as an opportunity to lighten-up, especially if you are overweight in bonds. Or better yet, consider engaging a professional to manage your bond portfolio.

I believe now is an excellent time to consider Capital Management Group and read my free Special Report entitled “How To Own Bonds Today.” Click here.

That’s all for this week. The next week should be very interesting!

All the best,

Gary D. Halbert

P.S. Even though I am not a member of any political party, my views tend to be conservative. Upon the request of a prominent Democrat, nationally syndicated columnist Peggy Noonan (also a conservative) has written a brilliant article on what the Democrat party needs to do to regain its popularity with the American people. Be sure to read it!

SPECIAL ARTICLES

Peggy Noonan gives Democrats some interesting advice.

War Plans: How the US & Saddam Hussein are preparing.

Hillary throws support behind Bush & war…. Hmm.