On Thursday, I wrote a pretty unpopular subject line. "Saigon 2.0". The broad consensus a week ago was that Kabul, Afghanistan would be stable as the U.S. withdrew. We were told by the Biden administration that we wouldn't see helicopters on the roof of the U.S. embassy. Biden's press secretary has taken the week off, a sign of fatigue from the rest of the problems facing the administration right now. Kabul isn't Saigon.
| | | | | | As Expected, Here's the Fallout from Afghanistan |
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| Dear Reader, On Thursday, I wrote a pretty unpopular subject line.
"Saigon 2.0".
The broad consensus a week ago was that Kabul, Afghanistan would be stable as the U.S. withdrew. We were told by the Biden administration that we wouldn't see helicopters on the roof of the U.S. embassy.
Biden's press secretary has taken the week off, a sign of fatigue from the rest of the problems facing the administration right now. Kabul isn't Saigon.
It's probably worse. This is a massive intelligence failure on par with the Iraq War, the Suez Crisis, and the Bay of Pigs Invasion. Now, we have to measure the economic fallout and how it impacts the markets.
Here are my three key takeaways.
- The U.S. is in a standoff with China over Taiwan, which has been decidedly pro-West. But now the question is whether Taiwan reacts negatively toward the U.S. after this intelligence failure. Will the U.S. standby Taiwan as China threatens to annex it? My gut says we would fight that battle, but the geopolitical tensions are extremely high. I worry that Taiwanese businesses in the semiconductor space increase their concerns about U.S. business and commitments to their success. This could potentially create bigger headaches in the semiconductor space at a time that there is a shortage around the globe.
- This retreat from Afghanistan will likely shake up the way that we think about defense spending moving forward. There are countless images of Taliban fighters lifting American weapons to the sky. They seized Blackhawk helicopters, drones, and more. I don't think the Taliban will suddenly have an air force. But I'm sure China would be interested in our weapons for the purposes of reverse engineering. The U.S. spent $2 trillion on Afghanistan over 20 years. I think this is an inflection point. I expect that we'll turn away from building more drones and weapons for offensive purposes and turn to a more defense-oriented focus. That means more money for cybersecurity and at-home domestic security. There will be a lot of scrutiny now over spending - particularly from the more vocal left-wing members of the Democratic Party. To be honest, that is welcome. This was a disaster.
- Finally, this will likely cement China's strength on rare earth metals once and for all. There is roughly $1.1 trillion in rare earth metals in Afghanistan, and I'll bet that China will be glad to start that mining process right away. The U.S. keeps saying that it wants to increase its production in lithium and other metals, but bureaucracy and environmental concerns tie mining projects up in court. In Nevada, right now, a mine with enough lithium to create millions and millions of batteries is tied up in court over a rare flower. China doesn't care about the environment, and I expect it will start mining heavily in Afghanistan in the future.
We'll talk more tomorrow about one of the more interesting value trends in the market today.
Enjoy your Monday, |
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| | | Garrett Baldwin
Chief Analyst, American Markets
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