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Generational Dynamics Web Log for 17-Nov-2009
Lebanon agrees on a unity government with Hizbollah

Web Log - November, 2009

Lebanon agrees on a unity government with Hizbollah

Meanwhile, tension between Saudi Arabia and Iran is increasing.

The west breathed a sigh of relief earlier this year in June, when the pro-Western coalition defeated the pro-Syria Hizbollah bloc in Lebanon's parliamentary elections.

The pro-Western coalition, known as the "March 14" bloc, is led by Prime Minister Saad Hariri, the son of Rafiz Hariri, who was killed by a terrorist bomb in February, 2005. (See "Massive Beirut explosion killing Rafiq Hariri puts Lebanon into state of shock.")

The March 14 bloc won a narrow victory over Hizbollah's "March 8" coalition, but Hizbollah still had enough seats to effectively hold a veto power of all legislation. This caused a continuing political crisis that prevented a government from being formed.

But now, in a significant turn of events Lebanon has announced a national unity Cabinet, with a strong opposition presence led by Hezbollah.

From the point of view of Generational Dynamics, this agreement is significant because it resolves many of the political disputes of Lebanon's generational Awakening era. It may even turn out to be the Awakening era climax, though it's too soon to know that for sure.

Lebanon's last crisis war began in 1975, and it became a war with Syria in 1976. Israel was an off-and-on participant, and the war reached an explosive climax in 1982 when Christian Arab forces, allied with Israel, massacred and butchered hundreds or perhaps thousands of Palestinian refugees in camps in Sabra and Shatila.

Since that war ended, the Lebanese people have been haunted by that episode, and officials have been determined not to allow anything like it to happen again.

On November 5 of last year, a web site reader wrote the following to me:

"I am very impressed with your site, especially when looking at some of your past predictions. I was trapped in Lebanon during the fighting in early May and everyone was in great fear that a civil war was in progress. You predicted that it would fizzle out, and it did."

This fear of renewed violence has been a major theme for Lebanese politics. Ironically, it's this very fear that prevents similar violence from happening again. That's why crisis wars never occur within generational Awakening eras, and any warlike violence quickly fizzles out.

Thus, we have Time Magazine reporting on the new unity government by saying that "the deal ends the three-year political crisis that brought the country to the brink of civil war."

That's simply not true. Lebanon was never on the brink of a civil war, paradoxically because of the widespread fear that Lebanon was on the brink of a civil war.

At various times on this web site, we've discussed similar concepts with a number of countries in generational Awakening eras -- Iran, Iraq, Lebanon, Syria, Thailand.

These Awakening eras are similar in many ways to America's last Awakening era in the 1960s. Just to take one obvious comparison, America saw violent riots and demonstrations in the 1960s, as well as the assasination of President Kennedy. Lebanon has seen massive demonstrations by Hizbollah, and the assassination of former Prime Minister Rafik Hariri. (See "Iraq Today vs 1960s America.")

From the point of view of generational theory, what's going on in the Mideast is very interesting because of the potential clashes involving countries in Awakening eras, like those just noted, and those in generational Crisis eras, including Israel, Palestinian territories, Jordan, Yemen and Saudi Arabia.

We've already seen a fascinating example of this in the summer 2006 Israeli/Hizbollah war in Lebanon. Israel, in a generational Crisis era, panicked and fought the war in a "hot" fashion, with maximum force. Hizbollah warriors, in a generational Awakening era in Lebanon, fought the war in a "cool" fashion, launching missiles and returning home to the arms of their wives. (See: "Israel/Lebanon war forces Muslims to choose," and "How Israel panicked in pursuing the summer Lebanon war with Hizbollah.")

The Lebanese people were greatly shocked by what they considered to be Israel's overreaction in the 2006 war. Recall that the war was triggered when Hizbollah kidnapped two Israeli soldiers on the border between Lebanon and Israel. Israel's response was completely panic-driven. Israel went to war in four hours, with no plan, no objective, and no idea what was going on.

Hizbollah chief Sheik Sayyed Hassan Nasrallah has had to apologize to the Lebanese people for provoking the 2006 war, saying that he never expected Israel to react so violently. That's not the kind of thing you would ever expect to hear from the leaders of Hamas, following the war in Gaza earlier this year. But that's the difference between the Lebanese, in an Awakening era, and the Palestinians, in a Crisis era like the Israelis.

As the Mideast heads into full-scale war, we can expect to see battles and sub-wars waged between belligerents who are mismatched in the sense that one is in a generational Awakening era, and the other is in a generational Crisis era.

Yemen, where the Houthis in Saada province are at war with the Saudis, and displaced refugees are nearing Yemen's capital, Sana'a. <font size=-2>(Source: CIA Fact Book / Economist)</font>

Yemen, where the Houthis in Saada province are at war with the Saudis, and displaced refugees are nearing Yemen's capital, Sana'a. (Source: CIA Fact Book / Economist)

One war of this type is already heating up: a spiraling conflict between Saudi Arabia (in a Crisis era), and Iran (in an Awakening era).

Two months ago, I posted a report entitled "Escalating civil war in Yemen threatens to pull in Iran, Saudi Arabia and U.S." The war in Yemen is turning into a proxy war between Saudi Arabia and Iran.

Within the last couple of weeks, Houthis (who are Shia) in Yemen (which is mostly Sunni) crossed the border into Saudi Arabia, killed a border guard, and took control of a small area of Saudi territory. The Saudi air force immediately became embroiled in the war, bombing Houthi targets, and taking Houthi anti-aircraft fire.

You can see a similar pattern here to the 2006 war in Lebanon. Iran is being accused of supplying weapons to the Houthis, but other than that, playing a completely passive role. The Saudis, on the other hand, are reacting directly at war with the Houthis.

This Saudi/Iranian conflict has the potential to spiral into a major regional crisis. As I've written many times, Generational Dynamics predicts a major war between Sunni and Shia Muslims, and the Saudis and Iranians will be major respective belligerents in that conflict.

According to an analysis by Ambassador M K Bhadrakumar, a career diplomat in the Indian Foreign Service, the Saudis are actively stepping up their confrontation of the Iranians on three fronts:

In Afghanistan, much of the funding for the Taliban comes from the Saudis, who are hoping to play a key role in any reconciliation process between the Taliban and the Americans. The Iranians are very concerned about increasing Saudi influence in Afghanistan, especially after last month's massive terrorist strike by Jundallah in Iran. (See "Furious Iran blames Pakistan, US and Britain for Sunday's terrorist attacks.") The Jundallah attack still has the potential for becoming an important triggering event of some kind in the Mideast.

In Iraq, with America reducing its force strength, both the Saudis and the Iranians are competing to fill the vacuum.

On the border with Yemen, the Saudis are fighting Shia rebels allied with Iran, as we've described.

According to Bhadrakumar,

"One thing is certain. Tehran will do nothing adventurous that sullies its reputation as a "responsible" regional power. A confrontation with the US is the last thing that Tehran is looking for, either. Persians have a keen sense of history and have always preferred brain over brawn. Tehran cannot be oblivious that in any case, it is well placed to garner political mileage out of excessive Saudi involvement in Yemen, which will tarnish Riyadh's regional standing and inevitably produce a Houthi (Yemenese nationalist) backlash."

This is an interesting statement because Iran didn't prefer brain over brawn in the 1979 Islamic revolution, its last crisis era war, which was a very bloody civil war. But Iran is in an Awakening era now, when brain over brawn does prevail. But as he points out, the Saudis are much more involved militarily, and as America has learned in so many wars, air power doesn't guarantee victory.

---

It's been almost a month since I've written anything about the financial crisis (see "Nouriel Roubini apparently is predicting a global market crash.")

During this time, the stock market has continued its parabolic rise into a new superbubble. The funny thing about what's going on is that even the fig leaf of "operating earnings" has disappeared -- the P/E ratio based on operating earnings is up in the 27 range. Not to mention that the "ordinary" S&P 500 P/E ratio is above 70.

The "reason" for optimism that I keep hearing is the 3rd quarter earnings are higher than expected. Well, that's true. They were expected to be 35% lower than last year's deflated earnings, but instead they're only 14% lower. Ummm, let's see: Earnings are down 14%, but stock prices are up 40%. Could someone do that math for me?

There is absolutely no shred of anything fundamental that points anywhere but downward.

I tell people that a crash must occur "with 100% certainty," and they give me a smug look and tell me how I've been proven wrong by the rally.

I just can't believe how crazy everything has become. At least in the past few years, I could see how someone could massage the facts and convince themselves that the market would always go up, but today there's nothing to massage.

How does one explain this? How does one explain a public insanity that's so great that even fantasy reasons don't apply?

I'm sure that no regular reader of this web site is so dumb as to own stocks at a time when price/earning ratios are above 70, when the historical average is 14. However, if any of your friends are in the stock market now, they're going to lose a great deal of money.

There is now a very broad consensus that the current stock market bubble is being driven by massive stimulus spending. With Treasury interest rates effectively zero, investors are borrowing money at zero percent interest rates and investing the money in commodities and stocks. This is a typical "carry trade" scenario, and it will work as long as the dollar continues to weaken.

On CNBC on Monday morning, Art Cashin described the most likely scenario that will end this bubble: "My great fear is that you'll have some sort of geopolitical event, and people will start rushing to the dollar, and a flight to safety, and that will catch all these carry traders flat-footed, and you could have a real problem.... It could happen when you least expect it."

Thus, with a war escalating on the Saudi border, as well as potential crises elsewhere in the world, a flight to safety created a demand for the dollar would quickly push up the value of the dollar against other currencies. This would force the carry traders to sell their commodity and stock positions quickly, in order to return the dollars they had borrowed. (Paragraph corrected, Nov 22)

(Comments: For reader comments, questions and discussion, see the Middle East thread of the Generational Dynamics forum.) (17-Nov-2009) Permanent Link
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Generational Dynamics Web Log for 17-Nov-2009 Lebanon agrees on a unity government with Hizbollah

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Generational Dynamics Web Log for 17-Nov-2009
Lebanon agrees on a unity government with Hizbollah