Red Alert: Libyan Forces Approach Benghazi
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Though Gadhafi declared a unilateral cease-fire in response to the U.N. Security Council’s (UNSC) authorization of the use of force against Libya on March 17, it is becoming apparent that this was simply a stalling tactic in an attempt to consolidate gains ahead of airstrikes. The military incentive for Gadhafi is to reach Benghazi before any airstrikes begin. If a “no-drive” zone between Ajdabiya and Benghazi were to come into effect, military vehicles and supply convoys would be vulnerable to any coalition aircraft orbiting overhead, making it far more difficult for Gadhafi to project force across the large open terrain that separates the two cities. Airpower can also make it difficult to move and resupply forces, so the heavier elements of Gadhafi’s forces — tanks, tracked vehicles and artillery — already operating at the end of extended lines of supply, may quickly face logistical issues. However, while airpower can attempt to prevent forces from approaching the city, it cannot force the withdrawal of those forces from within the city without risking significant civilian casualties.
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Relevant political negotiations and military planning now taking place in Europe continues and more time is needed to mass forces for the impending air campaign against Libya. Nevertheless, if the European-led effort is to stop Gadhafi from reaching Benghazi, it will have to begin soon, with what forces have so far been moved into place — though given Libya’s distance from mainland Europe, the presence of U.S. Marine Corps and Italian Harriers and cruise missile-armed warships off the coast, there already is a considerable amount of coalition airpower in place.
As nightfall approaches, loyalist forces with little night-vision capability may slow operations, and any air campaign against them will likely begin under the cover of darkness, consistent with longstanding U.S. and NATO operational practice. Targets are prioritized, so available airpower will begin to work down the list with the suppression of enemy air defenses as well as command, control and communications likely to be at or near the top of the list, though SA-7 MANPADS and anti-aircraft artillery will remain a persistent threat.
Rules of engagement will be an important question. While Gadhafi’s forces have been led by a vanguard of T-72 main battle tanks and supported by BM-21 rocket artillery, his infantry is often videotaped using civilian vehicles for transportation. While the intention will likely be to stop all traffic between Ajdabiya and Benghazi, whether coalition aircraft are willing to fire on civilian vehicles remains to be seen. If so, they risk considerable civilian casualties. If not, they may deny the use of tanks and artillery but risk not stopping Gadhafi’s infantry.
The use of airpower has been authorized, forces are being massed and Gadhafi appears to be acting as though its use is inevitable and so is moving while he can. However, the application of airpower entails civilian casualties, and it remains unclear if that application can be translated into the achievement of political objectives in Libya. So while there are many tactical questions moving forward, there is only one strategic one: How has the European-led coalition translated the UNSC authorization into military objectives, and what are the operational parameters and rules of engagement that govern them?
As far as my view, taking out a regime is always the easy part, reconstructing a new government is the hard part-think Iraq/Afghanistan. The lack of leadership from the US is alarming and risks further MENA governments acting out as Gadhafi has, especially if they believe they can survive UN imposed actions. Libyan forces are not very sophisticated or battle tested (they are using equipment that is old Soviet designs that are in essence 3rd world; so any country with a stronger military may take this into consideration. One of the most damaging events to Israel as a deterrent was their apparent weakness in dealing with Hamas inside of Lebanon several years ago. Their lack of commitment fractured the perceived invincibility of Israel, especially as they dealt poorly with a rag tag force of Hamas fighters. If the US gives off the same impression to MENA autocracies, then the calculation of what they can get away with becomes very dangerous.
In the short term the market should react positively to strikes against Libya, but as the strategic implications are analyzed in the weeks and months to come, the US's seeming indifference could be a very dangerous precedent. It's a sad day when the French are the first in and the most committed to bringing down Gadhafi. It's a huge, damaging blow to the US administrations reputation. Even out allies are wondering where we stand and the most hawkish person is Hillary Clinton, who cannot give our allies an answer other then "there are difficulties". She's absolutely frustrated with Obama and made that clear in her very terse answer to whether she would serve in a second Obama administration, asked 4 times her answer was a simple, "NO". There was no elaboration, no, "I want to spend time with my family", she was sending a clear message to Obama and the world that she's as frustrated or more so then our allies. Obama's unwillingness to tackle an issue that HAS an actual REAL UN mandate, shows the world how weak of a leader he appears to be. This doesn't bode well for the US's
My outlook on the long term market hasn't changed a bit, the structural decay of traditional market liquidity, combined with the Chines finger trap the Fed and Federal government have created have caused them to do the only thing they see as politically viable, kick the can down the road, but the road is coming to an end and sooner or later, as I suggested in my 5 part video series in 2007, this market will not stabilize until there's a massive purge. The academic, Bernanke, has seemingly made a grave miscalculation or simply has chosen to side with Wall Street over Americans in general. His misunderstanding of the policies he's put in place have recently been revealed before the Senate in which a Senator schooled him on his misunderstanding of the economic doctrine he chose. In essence, he chose a path he didn't even understand correctly.
My downside target for the Dow back in 2007 was $5500, it could be worse by the time all is said and done since many things in the market have changed.I also predicted that the rally since March 2009 would be one of the biggest bear market rallies we have ever seen. I believe history will show that this was indeed a historic bear market rally and that's all it was. I know that's a dire forecast, but it's based on technicals and history and was made nearly 4 years ago, so far it's been pretty accurate. This will take some time, but not nearly as much time as you might think.
There's unprecedented opportunity for all of us. Most traders and hedge funds will lose it all, but we have a huge advantage as independent traders, we can choose our battles. We DON'T have to be in the market all of the time and I highly suggest that you use that edge to take only the best trades. There are over 10,000 equities to trade so there's always an opportunity, don't take trades that look like they "might" be good trades, take trades that look like a sure thing and diligently protect your portfolio with consistent risk management. In the end, the daily ups and downs of the market will be noise on the chart when looking back, keep your eye on the major trend which is rapidly deteriorating; don't let a 1 or 2 week counter trend rally take you off track. These rallies happen in the worst of bear markets historically, but looking back they are a blip on the chart, barely noticeable. It's different when you are going through them emotionally, but it shouldn't be. The more you study past bear markets, the more you'll see that they were meaningless with regard to the big picture.
Lastly, don't be too hard on yourself. You are trading in probably the most volatile market in the history of equities, this will become clear years from now looking back. We'll all make some mistakes, risk management allows you to survive them.
I'll have a list of trades that look good available before the open on Monday. Take your time and wait for the trade to come to you. Forcing a trade is an easy way to lose money quickly. This isn't a sprint, it's a marathon and when viewed as such, you have an opportunity to come in at the head of the pack.
Have a great weekend.
