WAR ON TERROR BACK IN THE SPOTLIGHT

FORECASTS & TRENDS E-LETTER
By Gary D. Halbert
March 16, 2004

WAR ON TERROR BACK IN THE SPOTLIGHT

IN THIS ISSUE:

1. Al Qaeda Attack Influences Spanish Election

2. Are Other European Allies Next?

3. US Implications Of The Renewed Terrorist Attacks

4. Terrorism And The 2004 Election

Introduction

Last week’s tragic train bombings in Spain brought the War On Terror back into the spotlight. Since there have been no follow-on terror attacks in the US since 9/11, Americans’ focus of attention has turned to the economy, health care and more mundane issues. However, with the latest horrific attacks in Spain, terrorism may again become a top concern of the public, as it should be.

As this is written, it is becoming clearer that an Islamic terrorist group was responsible for the bombings in Spain. Stratfor.com reports that Spanish explosive experts found one unexploded bomb, and they have concluded that the Basque separatist group ETA did not build the bomb.

It appears that the Spanish people had already come to this conclusion. In a surprising upset, the opposition Spanish Socialist Party defeated the ruling People’s Party, showing the Spanish people were convinced that the bombing was tied to Spain’s support of the US action in Iraq.

Along with the latest attack, which killed 200 people and wounded over 1500, came a specific new warning of more terror attacks in the US that are “90 percent ready” to launch. I will discuss the implications of the Spanish elections and al Qaeda’s warning to the US in more detail below.

There is little doubt that the latest terror bombings in Spain will change the domestic political discourse, especially between President Bush and Democratic nominee John Kerry. Kerry and fellow Democrats have roundly criticized Bush for the war in Iraq, even though Kerry voted for it. He has also been critical of Bush’s handling of national security matters. It remains to be seen if Bush will turn the tables on his unabashed critics.

Al Qaeda Wins An Election

In a surprise upset, the Spanish Socialist Party defeated the Popular Party led by José María Aznar. The Socialists have campaigned against the unpopular Spanish involvement in the war with Iraq, and its leader, José Luis Rodríguez Zapatero, promised to withdraw Spain’s 1,300 troops from Iraq, if elected. It now appears that Spain’s troops will be withdrawn, and the US has lost a long-standing ally in the War On Terror.

There is no coincidence that the commuter train bombings occurred just prior to this election. Though Aznar had repeatedly blamed the bombing on a Basque separatists group, it is clear that the Spanish people believed that the bombings were related to their support of the US in Iraq. In its latest Geopolitical Diary, Stratfor puts it this way:

“The public response to the growing perception that this was an Islamist attack was to blame the government for the attack, arguing that it would not have happened if the government had not sided with the United States in Iraq.”

Whether or not Islamists are discovered to have been behind the Madrid attacks, it is clear that the perception was there on the part of the Spanish people. As a result, they changed the direction of their government. In a recent article I read, the author said that should Islamists be found responsible for the Madrid bombings, he thought the Spanish people would draw closer together and support the People’s Party for its support of the War on Terror.

He was half right. The Spanish people did draw closer together, but they were joined by their perception that Spain’s involvement in Iraq subjected them to a terrorist attack, so they ousted the People’s Party who they felt was to blame. In doing so, the Spanish people set a precedent that is likely to make Europe a more dangerous place. After all, if al Qaeda can influence the election in Spain, then why not in other countries as well?

Europe In The Crosshairs?

Unfortunately, al Qaeda has now learned that they can influence elections in countries that have allied themselves with the US against the War on Terror. Stratfor says:

“…they have discovered the fault line in the American alliance system. Allies are prepared to stand with the United States, even if the public is generally opposed. They can survive that dissatisfaction. If, however, the result of this alliance is massive civilian casualties, the equation shifts and the government runs into much more trouble. It was not an accident that this bombing occurred just before the Spanish elections.

…There are other countries in Spain's position. Britain obviously is, but so are Italy, Portugal, the Netherlands, Poland, Hungary and Australia, among others. All of these have been as strongly aligned with the United States as Spain. A wave of attacks in these countries, against soft targets like this, could shift the global balance. This therefore increases the pressure on the United States to make headway in Pakistan.”

The warnings after the attacks in Madrid came on the heels of two audiotapes recently sent to Arab TV stations by bin Laden deputy Ayman al Zawahiri. In one of the tapes, al Zawahiri threatened the United States with new attacks. In the other warning, al Zawahiri condemns the French for banning the traditional headscarf worn by Muslim schoolgirls.

While the latest threat of new attacks in the US is not surprising, it is unusual to see al Qaeda taking issue with the French. After all, the French put their relationship with the US on the line by opposing the war in Iraq, and paid a price through reduced exports to the US. It would seem that the French would get a pass from the terrorists for this action.

However, we should not forget that al Qaeda hates any society that is non-Muslim. Thus, European countries may find themselves the target of terrorism for not following Muslim traditions, even though they did not ally themselves with the US.

A recent report by the French counter-intelligence underscores this fact. It says that al Qaeda is in the process of recruiting tens of thousands of European Muslims and organizing them into military-type units. They reportedly meet regularly under the auspices of innocent social organizations to train for terrorism and the use of weapons and explosives.

According to European sources, between 35,000 and 45,000 individuals have been recruited in France alone. In Germany, al Qaeda is estimated to have added another 25,000 to 30,000 men, and another 10,000 have joined in Britain. Numbers of enlistees in Belgium, Switzerland, Holland, Sweden and Norway are unknown, but are thought to be significant.

One alleged twist on this new recruiting push is that up to 25% of the new recruits are so-called “white” Muslims, meaning native Europeans who have just recently converted to Islam. Al Qaeda already knows that their typical recruiting grounds in mosques, Islamic culture centers and Muslim neighborhoods are being closely watched, so they have reportedly shifted their focus to a new demographic group (recent converts to Islam) who will be very hard for anti-terrorism intelligence to identify. These recruits not only don’t fit the typical terrorist “racial profile,” but also do not have their names on known terrorist lists.

Terror Attacks Bring New Warnings For The US

The Abu Hafs al-Masri Brigades, a prominent militant group in Spain with known links to al Qaeda, sent a five-page e-mail and fax to the London-based newspaper al-Quds al-Arabi last Thursday claiming responsibility for the Madrid train bombings. The claim also contained a new terror warning against the United States:

“We announce the good news for the Muslims in the world that the strike of the black wind of death, the expected strike against America, is now at its final stage -- 90 percent ready -- and it is coming soon, by God’s will.”

The group threatened other US allies and taunted Spanish Prime Minister José María Aznar, saying, “Aznar, where is America? Who will protect you, Britain, Japan, Italy and the others from us?” Al-Masri claimed its "death squad" had infiltrated "one of the pillars of the crusade alliance, Spain," and successfully executed "Operation Death Trains" in Madrid.

The reason for the Madrid bombings is that Spain has been one of America’s staunchest allies in the War On Terror and specifically in Iraq. Spain was one of the first nations to join the Coalition and send troops to Iraq. Another reason may be Spain’s aggressive pursuit of terrorists within its own borders ever since 9/11.

While the outcome of the Spanish elections is cause for concern in regard to other foreign allies, there is also the new threat of another major terrorist attack in the US. There is no way to know how serious the latest threat is, or if it is nothing more than hype intended to invoke new fears in America. However, it is not a threat that should be taken lightly.

Temporary Complacency

The Madrid attack was significant for a number of reasons. The West had been lulled into a temporary complacency thinking that the US was successful in taking the war to the terrorists, so they were too busy running and hiding to mount an attack. While I do think the War on Terror has been effective in disrupting the terrorist network, I think we are also foolish to believe that it has ceased to operate. The Madrid attacks prove this to be the case.

Another significant result of the attack in Madrid was the stock market’s knee-jerk reaction to the news. I have consistently qualified my positive economic outlook and investment recommendations with the caveat that all bets are off if another major terrorist attack occurs on US soil. The stock market losses last Thursday showed that there are plenty of others who feel this way too. Yes, the stock markets rebounded last Friday, but the immediate response to the terrorist attacks was to head for the exits.

This is significant. We can talk all we want about the economic recovery, better corporate profits and a rising stock market, but if we see another major terror attack on US soil, all of this optimism will go south in a hurry, just as it did after 9/11.

Back To Politics

The current political discourse is based on a perception of safety in the US. Discussions about health care, tax policy, economic recovery and employment must all assume a stable environment where we feel free from attack. In the end, however, the bottom line of all of these issues depends upon how safe we actually are, not how safe we think we are. Even so, the lesson from Spain is that perceptions determine election outcomes.

Thus, the 2004 election is going to be about shaping the perceptions of American voters. The press tends to want to focus on domestic issues, where Democrats appear to be stronger, and less on the issue of terrorism. However, I think the stock market’s recent knee-jerk reaction to the Madrid attacks illustrates that terrorism is not too far back in the minds of the average American.

Unfortunately, at this point in time we really don’t know whether our Department of Homeland Security has protected us from additional attacks, or whether al Qaeda just doesn’t yet have “all of their ducks in a row” for its next offensive. We hope and pray that the measures taken to tighten domestic security have been successful, but it’s difficult to know for sure.

Who Makes You Feel Safer?

It is widely believed that al Qaeda miscalculated the US response to the 9/11 attacks. They had viewed the US as a soft society who would not retaliate for the attacks. However, in reality they awakened a sleeping giant. In Spain, however, the attacks did have the desired effect. Does this mean that al Qaeda might try the same tactic just prior to the US elections? Now that the War On Terror is 2 ½ years old, do they think that the American public may be weary of troop deployments and almost daily losses?

As a practical matter, it’s probably impossible to stop all kinds of terrorist activities in the United States considering the sheer size of our borders and freedoms we enjoy. If Israel can’t shut down suicide bombers, why do we think we can? So far, however, al Qaeda seems to have opted for the big event in the US, rather than numerous smaller attacks. This, I think, is in our favor since the logistics involved in a large attack require more people, planning and coordination, and thus more ways to be detected. What we don’t know is how long al Qaeda will stick to this game plan.

I don’t think we can count out an attack by al Qaeda prior to the US elections. When this may occur, nobody knows. The Spanish attack was successful by being just before the election, but I have read other analysts who think that al Qaeda may be planning something in the US for spring or early summer. Again, they have successfully influenced an election by changing the perceptions of Spanish voters, so you can bet that they are now trying their best to figure out when and what kind of attack would most influence American voters.

I know this type of thing is not pleasant to think about, but it is necessary in the post-9/11 world of global terrorism. Whether or not another attack occurs on US soil, it’s clear that al Qaeda still has the ability to strike. As a result, I think this year’s election is going to boil down to one question – which candidate makes you feel safer? I think if you consider the track record of both candidates, the choice is easy to make.

Kerry’s Waffle House

John Kerry is a decorated Vietnam veteran. However, he came back to the US and became an anti-war activist, even going so far as to recount atrocities committed by his fellow soldiers while in Vietnam, even though some of his accounts were later shown to be untrue. Even so, his outspoken opposition to the war allowed him to shed his military background and slip into a more liberal persona that would make him more electable in his home state of Massachusetts.

Now that he is on a national political stage and not in just one liberal New England state, Mr. Kerry has again picked up his military medals (you know, the ones he said he threw away but didn’t) and is using his status as a veteran to try to get votes. This, plus Kerry’s constant flip-flops on the issues, can only be described as a candidacy of political expediency.

In fact, Kerry’s actions while running for the Democratic nomination have been political expediency in the extreme. Even the ultra-liberal website, Slate, made the following comments regarding Kerry’s constant waffling on the issues:

“Kerry did vote for the Patriot Act, the No Child Left Behind Act, and the war in Iraq, even though he [now] constantly trashes the Patriot Act, the No Child Left Behind Act, and the war in Iraq. He voted against the Defense of Marriage Act, which limited marriage to a man and a woman, but he now says marriage should be limited to a man and a woman.”

The article goes on to list a number of other issues on which Kerry has flip-flopped during the course of the presidential campaign. (A link to the full article can be found in the Special Articles section below.) His supporters say that his waffling is nothing more than an indication of his intelligence and ability to grow and change. It’s just funny that the changes seem to always be in the direction of political expediency.

So, how does this relate to the issue of terrorism? The fact is, it’s hard to tell. Which way will the wind be blowing if Kerry is elected president and another terrorist attack occurs? Will he immediately bring our troops home from the Middle East, or will he leave them there? Sure, his website and campaign speeches contain a plan for everything, but what will he actually do should he be elected? Your guess is as good as mine. His record indicates that you cannot go by what he says or how he votes, so you’d just have to wait and see.

Bush – Consistent Leadership

On the other side of the election is President Bush. While I have been a vocal critic of the president when he has abandoned traditional conservative ideals on farm subsidies, steel tariffs, and immigration, all of these issues pale in comparison to his leadership in the War on Terror.

Think about it. While enduring almost constant blistering criticism and second-guessing by Democrats and their liberal press lapdogs, Bush has stayed on target to take the War On Terror to those who represent a threat to America and our way of life. His resolve has stayed strong and has weathered the storms of inaccurate intelligence, calls to defer to the UN and being abandoned by countries that have formerly been strong allies.

Critics of President Bush like to bring up the discussion about weapons of mass destruction and the war was just about oil. The problem with these arguments is that first of all, Clinton relied on and made decisions based on the same intelligence on WMDs. Other Democratic leaders did the same. If there is a problem, it’s that the intelligence was wrong, not that it was manufactured.

On the war for oil issue, if Bush had wanted to control the largest Middle East oil reserves, we would have attacked Saudi Arabia and not Iraq. Given that most of the 9/11 attackers were from Saudi Arabia, as well as bin Laden himself, he might have been able to justify it.

Conclusion

In a perfect world, politicians would genuinely seek to do what is best for all of their constituents. While they may differ on specifics regarding the domestic agenda in America, it should be a top priority for any public servant to make sure that basic safety is met. Otherwise, the domestic agenda could cease to exist.

Whether you agree with President Bush’s stance toward Iraq and the War On Terror or not, you have to admit that he has remained steady in his resolve to do what he thinks is best. While he has done his best to strengthen our domestic security, he has also taken the offensive to where the terrorists are, disrupting their leadership and keeping them on the move.

I believe that this leadership will be the basis upon which the election is decided. A recent poll taken by Andres McKenna Polling and Research may back this up, finding that 60% of Americans believe “the terrorists would prefer” Mr. Kerry to win the election. That says enough for me.

Since I’m in the investment business, I just can’t resist the urge to say a word about investing in these troubled times. Since I began writing this E-Letter, I have consistently recommended that you consider actively managed programs that can move you out of the market, if necessary. I believe that now it is more important than ever to have such programs in your portfolio. As we saw with Wall Street’s knee-jerk reaction to the Madrid bombings, further attacks by al Qaeda can and will have an effect on the markets.

CLICK HERE to review the actively managed programs I have recommended in the past. You can also call one of our Investor Representatives at 800-348-3601, or visit our website at www.profutures.com.

All the best,

Gary D. Halbert

SPECIAL ARTICLES

John Kerry’s Waffles

Kerry Fails To Back Up Foreign “Endorsements”

After The Train Bombs, A Political Bombshell

Rewarding Terror In Spain