RUSSIA CLAIMS SADDAM WILL DISARM YEAH, RIGHT!

** ProFutures is closed today due to the ice storm.
    
Hopefully, we will be able to make it in tomorrow. 

IN THIS ISSUE:

1.   The New British/US Resolution.

2.   Saddam Secretly Agrees To Disarm?
     Or Is He Just Buying More Time?

3.  What Bush’s Options Are Now?

4.  Bush In A No-Win Situation.

5.  A Buying Opportunity In Stocks.

Introduction

Whether you are in favor of a US-led war on Iraq, or you oppose it, or you are undecided, it is wise to keep yourself abreast of what is happening.  You don’t do that by simply watching the major networks and assuming they are giving you the complete, unbiased story.  In this issue, I give you a summary of the latest insights from various independent sources I follow.

Things have not gone well for the Bush administration in the last week.  Large anti-war demonstrations, a new French/German/Russian resolution against the war, reports that Saddam has agreed to disarm, and a Saddam/Dan Rather interview that will air today on CBS.  No doubt, Saddam has been emboldened by these and other developments.

The Bush administration now finds itself in a corner.  By going the diplomatic route, with Congressional approval and UN Resolution 1441 and now the latest proposals from both sides in the last week, the Bush administration sees support for the war waning and time rapidly running out.   So what happens next?  That’s the big question.  Read on.

The New US/British Resolution

Last week, I told you that Stratfor.com believed the Bush administration had decided not to ask for a second UN resolution on war with Iraq.  As we have learned, Stratfor was half right and half wrong.  Late last week, British Prime Minister Tony Blair advised President Bush that he had to have the “cover” of a second resolution before going to war; without it, he could face a “no confidence” vote of the British Parliament, which means he could be removed from office.

The Bush administration reluctantly agreed to a second resolution which was introduced on Monday by Britain.  The new resolution does not request authorization to go to war and is little more than a repeat of the first Resolution 1441.  As of now, it does not appear that the second resolution will pass.  Making matters worse, France, Germany and Russia introduced their own new resolution calling for five more months of UN inspections in Iraq.

The Bush administration miscalculated once again.  They hoped the latest watered-down resolution would pass in the UN Security Council, which meets to consider it tomorrow.  But they will also be meeting to consider the new French resolution to allow five more months of inspections.   Again, I seriously doubt the new US/British resolution will pass.

Russia Says Saddam Agrees To Disarm

In the meantime, Stratfor and others are reporting today that the Russians are about to announce a bombshell: 1) that Saddam Hussein has agreed to disarm at last; 2) that he will allow UN peacekeepers into Iraq to oversee the disarmament; and 3) that he may even allow US oil companies back into Iraq after a 30-year hiatus.  Hum….

And there’s more: Saddam granted an interview with Dan Rather of CBS that is supposed to air later today.  Reportedly, he has even challenged President Bush to a debate.  This must be true since the White House has already dismissed the idea of a debate.  What follows is a summary of Stratfor’s latest report on this development.

Saddam Agrees To Full Compliance

According to Stratfor, Russian Prime Minister Yeygeny Primakov met with Saddam Hussein in the last week on very short notice.  Hussein and Primakov are reported to be close friends.  The complete substance of their latest meeting is unknown but reportedly, “Hussein was asked -- and agreed -- to cooperate fully with U.N. weapons inspectors.”

Stratfor’s sources within the Russian government said that Hussein agreed to cooperate with all of the inspectors’ demands, including the destruction of the al Samoud 2 missiles by March 1.  Furthermore, Hussein reportedly agreed to a proposal by Russian President Vladimir Putin which would allow UN peacekeepers into Iraq within the next 10 days or so to back up the weapons inspectors.  Moreover, Hussein reportedly agreed to unilaterally disarm.

When this news is announced, Stratfor expects the following to be the media take: “This would show the world that Iraq will be unconditionally disarmed under strict and fully enforceable U.N. deadlines, with peacekeepers staying on in Iraq until the task is complete.” 

What’s actually more fascinating, according to Stratfor, is that Hussein has asked Putin to deliver a secret message to British and American energy giants stating that they will be allowed to return to Iraq as major industry players. Reportedly, he will say that the oil companies could return immediately, IF the US calls off its planned invasion.

According to Stratfor, Vladimir Voloshin, the Russian internal affairs chief, was dispatched to Washington over the weekend to advise the Bush administration of these latest supposed developments. Stratfor’s Russian sources say, “The ultimate goal of this [Voloshin] visit is to persuade the Bush administration that Iraq will be disarmed to such a point that it not only will be unable to threaten U.S. and Israeli forces for years to come, but would be unable to resist a U.S. invasion if Washington deems it necessary to attack Iraq in the future.” 

Simply Buying More Time

Why would Hussein suddenly change course when he has been defiant for the last 12 years?  Reportedly, Hussein told Dan Rather that he would NOT destroy his al Samoud 2 missiles.  Also, disarming does not seem to be in line with Saddam’s long-term objectives of regional control and possible exportation of terrorism.  His actions to date have been nothing but obstructionist, so it does not seem likely that he would, at the request of Russia, come full circle on the issue. Yet the world is supposed to believe the Russians!

Are the Russians lying?  I wouldn’t rule it out.  As discussed below, the Russians may have serious reasons to keep the US out of Iraq at any cost.

Or is Saddam Hussein lying?  Almost certainly.  He has a long history of lying and deceiving.  If it is true that Saddam made these concessions to the Russians, I believe it is simply another deception to buy more time.  He knows that if he can just delay the war for a few more weeks, it will be impossible due to the spring/summer heat.  That will buy him more time to hide his weapons.  Frankly, I don’t believe either the Russians or Saddam.

Why Are France, Germany & Russia So Desperate?

Last week, I suggested the idea that France and Germany are opposed to the war largely because we might discover that they have sold Iraq weapons, materials and technology that are banned by the UN sanctions.  Russia may have just as much, if not more, to fear than the French and the Germans.   Russia has been desperate for hard currency, and it has sold weapons to many countries.  I don’t think they would have balked at Iraq.

Of course, I don’t know if this is true.  To my knowledge, no one knows for sure except France, Germany, Russia and Iraq.  If the Bush administration had such knowledge of prohibited weapons and related sales to Iraq, you would think they would go public with that information, especially with the French and Germans so vocally opposed to us.

Russia, in particular, is also opposed to the war because the establishment of a permanent US military force in Iraq will give the US hegemony in the Middle East.  France and Germany are opposed to this as well, but the Russians are especially troubled by the prospect of the US having de-facto control in the Middle East.

What Happens Next?

Will the Bush administration launch the war despite so much opposition?  Or will they call it off?  We simply do not know.  I’m not even sure if Bush and Blair know for certain  at this point, especially if the Russian revelations above are correct.

The Bush administration did not cave in to Turkey’s demands for more billions.  Essentially, the Bush administration said to Turkey, “Fine, we’ll go it without you.”  At that point, Turkey quickly changed its mind, not wanting to lose the $6 billion the US was offering.  Now, US troops and equipment are pouring into Turkey.  Live reports this morning show ships unloading at Turkish ports.  This indicates that war plans have not been called off, at least not yet.

A Way Out For The US?

Even if Saddam has agreed verbally to disarm, I don’t believe that Bush and Blair will take him seriously, nor should they.  However, Stratfor does not rule out the possibility that Bush and Blair could change their minds.  They could claim that Saddam has agreed verbally to disarm directly as a result of the military pressure we have placed on Iraq.

Reportedly Russian President Putin has already informed France’s Chirac and Tony Blair of the Primakov meeting and Saddam’s supposed agreement to disarm.   Chirac was reportedly enthusiastic, of course, while Blair was more reserved.

Of course, we don’t even know for sure if Saddam has actually agreed to disarm.  Reportedly, in his interview with Dan Rather that is to air today, Saddam told Rather that he would NOT dismantle his al Samoud 2 missiles.  Yet the world is supposed to believe the Russians who say he has agreed to unilaterally disarm all of his illegal weapons!

There will be many who will argue in favor of the new French/German/Russian resolution to allow inspections to continue for another five months.  “What’s a mere five months?”, they will ask.  “The weather will be good again by then,” they will say. 

The problem is, the US has this massive deployment in the Middle East, and it will be enormously expensive to keep those forces in place for five more months, plus however long the war takes.  Plus, there is always the risk those forces could be needed elsewhere.

The bad news, should Bush and Blair decide to back off, is that Saddam remains in power, Bush’s conservative base will be seriously disenchanted and the anti-war crowd will be emboldened.  In addition, the US desire for the establishment of a permanent US presence in the Middle East will be squashed.

The final decision will rest with the Bush administration and its advisors. They will weigh the risks of action AND inaction.  Given the shrinking time-window, I expect a decision very shortly.

Bush In A No-Win Position

Hardly anyone truly believes Saddam will disarm without the use of force.  Even the anti-war crowd believes he is dangerous, but they prefer simply to contain him or ignore him.  Bush is in a tough spot.  By choosing to go the diplomatic route, thus burning several precious months and not getting the result he wanted, he is in a no-win situation.  And his re-election is on the line either way he goes.

Some of Bush’s closest advisors believe the war on Iraq will go very fast and very successful.  If they knew for sure this is the case, I believe they would indeed go to war, even without another UN resolution.  If they could win the war and remove Saddam in a few weeks with few US casualties, most Americans would rejoice.  The latest USA Today/CNN/Gallup poll, taken just after the latest anti-war demonstrations, shows 58% of Americans favor the war, while 40% oppose it.

Yet if the war goes badly, public sentiment will go south in a big way, and Bush’s approval ratings will plunge.  He knows this.  But if he decides to back off, his conservative base may abandon him.  Again, he’s in a no-win spot.  In the next few weeks, he could render himself a hero or a has-been.

There is an interesting analysis of Bush’s problems by Richard C. Holbrooke in SPECIAL ARTICLES below.  Holbrooke was the US ambassador to the UN under Clinton.  I don’t agree with everything he says, but he does make some good points.

War & The Markets

With all of the above said, it is still entirely possible that we could be at war – maybe as early as this weekend.  If Bush decides to go to war, it may be sooner rather than later.  Clearly, the stock markets are down on war fears.  But once the war starts, if it does, I expect the markets to rally, quite strongly in fact, if the war goes well initially.   And I think it will almost certainly go well initially, given our advanced weapons, if it happens at all.  So, we could see the great buying opportunity I have been referring to for the last several weeks.

If Bush and Blair should decide to forego the war and let the inspections continue, then I believe that will also spark a meaningful advance in the stock markets.  Either way, there could be a great opportunity in the next several days or weeks.  Expect the markets to continue to be very volatile in any event. 

Best Wishes,

Gary D. Halbert

SPECIAL ARTICLES

Dan Rather interview with Saddam.

Iraqi drones may target US cities.

Richard C. Holbrooke:  It didn’t have to be this way.

New York Times talks tough.


Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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