The geopolitical arena keeps getting uglier and uglier.
Just when we thought we had struck a deadly blow to Al Qaeda, ISIS emerges out of the ashes in Iraq and Syria.
Just when we thought ISIS had been “contained,” ISIS pulls off two attacks outside the Middle East.
First a Russian airliner blows up in mid-air, killing 224.
Then the attack on French soil that has killed at least 129 and wounded 350-plus.
I keep saying it’s going to get worse before it gets better. We’re seeing that now.
At first everyone was in denial when the plane exploded. With the exception of David Cameron, people were slow to state the obvious: it was a terrorist attack.
My source got it right from the beginning. It had to be a bomb – not a missile. A missile could have been tracked by radar.
It’s also incredibly unlikely the engines just blew up given the ways the wings landed largely intact, and that also meant it had to be a bomb in the back part of the plane.
What’s more – the terrorists clearly picked the airport with the lowest security standards. It’s obvious that ISIS wanted to punish Russia for entering the Syrian conflict.
And while the attacks over the weekend are not on the scale of 9/11, they have the same impact: innocent people can get killed or wounded at a concert, a restaurant, a bar, or a mall. This provokes a whole new level of public and political reaction than beheadings of journalists or deaths of soldiers who know they are in harm’s way.
It’s no surprise that French President Francois Hollande called this a declaration of war, bombing the hell out of an ISIS headquarters and training camp at Raqqa over the weekend.
He’s also called for a larger coalition to fight ISIS. This means boots on the ground, after all western leaders swore against it.
All of this only adds to the growing list of problems in Europe…
Most of the EU operates under one currency and open borders.
Given that officials believe the mastermind behind these attacks came from direct neighbor and ally Belgium, France has called for closed borders.
If that wasn’t bad enough, the euro zone has already been struggling to make sense of growing economic disparities.
The northern countries are more economically competitive. They export and lend more. Its southern neighbors, epitomized by Greece, are heavily indebted. They borrow more… export less and import more… and add little to the economic machine.
And it’s threatening everything upon which the economic bloc was founded.
To this point, the euro has fallen from 1.60 dollars down to 1.07 recently. Over the next few years I’ve been forecasting it’ll hit 0.85!
And let’s not forget the refugee crisis.
ISIS has warned that they would use the refugee flow to infiltrate its enemies. One of the suicide bombers came in recently on an emergency visa as a refugee with no documentation.
There are 1.9 million refugees in Turkey, a million in Lebanon and 400,000 in Jordan. Lebanon and Jordan are already at the brink. Turkey is nearly maxed out.
With so many turning to Europe… with three million more forecast over the next year or so… what happens if they are increasingly, if not suddenly, shut out?
All of this feeds into the Geopolitical Cycle I discovered now a decade ago.
By late 2005, I had already discovered an economic cycle spanning 80 years. By my configurations the stock bubble that burst in 2007 should’ve been about as strong as the one that burst in 1929.
But it wasn’t… and as I soon realized, it was because geopolitical trends were favorable in the final bubble phase of 1925 and 1929. But from 2003 to 2007, they weren’t.
The Geopolitical Cycle is that simple. For 36 years, it is favorable for 17 to 18 years then unfavorable the other 17 to 18 years – and it’s been that way all the way back to the early 1800s.
Between 1983 and 2000, almost nothing went wrong in the world. The Vietnam and Cold Wars faded rapidly. Then the unfavorable cycle struck in 2001, especially with 9/11. Since then, we’ve had two failed wars, endless civil wars, Russia invading Crimea and threatening to invade Ukraine, the rise of ISIS, the Boston bombing and growing unrest over police brutality in the U.S.
But this negative phase doesn’t bottom until around late 2019 or early 2020. That’s why I’ve been forecasting this geopolitical cycle will only get worse.
Going forward, we will see a stronger coalition against ISIS from the west, possibly with Russia on our side (but that’s tricky as Russia wants to keep Assad in).
Hopefully, more of the boots on the ground will come from the Middle Eastern countries that also need to rid itself of ISIS. We’d provide fewer boots, and more training, weapons and air support…
But make no mistake – we now have a mini World War III here.
And while we will win this war against terrorism, it will likely only get worse for about four years at first.
Hunker down. Stocks and our economy have to fight the perfect storm of worsening demographics, a debt and financial asset bubble that has only grown bigger with more to deleverage, and now an acceleration of geopolitical challenges.
Our sympathies and support should go out to France and Europe, as their proximity to the threat put them at far more risk to terror attacks than us. Although ISIS has warned that D.C. is next.
Mark my words: I believe 2016 will be a worse year and crash than 2008. Everything is starting to go wrong. Protect yourself on any rallies just ahead. Stocks are currently oversold and could bounce, but not likely for more than a week or two before starting to crash again.
Follow me on Twitter @harrydentjr