The Seeds of War Have Been Sown …

In a previous column, I showed you how the war cycles turn violently higher this year. I also addressed the issue of war, and its implications for the markets, at the Weiss Global Wealth Summit in January.

It’s a topic that no one likes to talk about. Yet I’ve studied the history and Cycles of War in detail. And I do not like what I see happening now in the least bit.

As I’ve also previously told you, I do not expect a war between China and the United States, nor between China and Taiwan, nor Russia and the United States.

But it’s also clear to me that there are many seeds of war now being sown, in many different areas.

First, we have the rising military might of China, and its territorial expansion into the South China Sea and the Spratly Islands.

Beijing wants control over the vast oil reserves in those regions, which could turn out to be the biggest in the world. Beijing also wants to exercise control over the vast, hugely important shipping lanes in the South China Sea, another reason we should all be concerned.

And make no mistake about it. China is becoming a military giant. It now has the largest number of active-duty troops in the world, at 2.28 million.

It has 7,400 tanks. 44 attack helicopters. 71 submarines. 2004 combat-ready aircraft. And a brand-spanking new, state of the art aircraft carrier.

And Beijing is upping its military budget over 10 percent this year, increasing its military spending by $106 billion.

Second, we also have rising cyber espionage all over the world, much of it instigated by China and North Korea. The media calls it “hacking.” I call it “spying.” Either way, there’s a good chance we may one day, in the not-too-distant future, see a full-scale cyber war break out.

Third, we have Iran and Israel, the Middle East. Always a problem, my models show this year could be the year that war breaks out in the Middle East. The Arab Spring is a prelude, one that has sown the seeds of war and uprisings and rebellions all over the Middle East.

But the area that worries me the most is none other than Europe, where the demons of previous wars are still very much alive.

Europe is a cesspool of rotten politics, inept leaders,

and a monetary system that was flawed from the outset.

And worse now, is that the latest Cyprus developments are directly planting the seeds for a civil war in Europe.

Europe is going to splinter apart at the seams. I am sure of it.

The mere gall that northern European leaders have to even suggest that Cypriots’ bank accounts be raided is something no one should take lightly. It shows how desperate the situation is in Europe … and how desperate the so-called “Troika,” has become.

The European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB) are all clamping down hard on weaker European peripheral countries with austerity programs and now, threats of confiscation …

When in reality, they have no one to blame but themselves for the mess that Europe is in.

Yes, countries such as Greece, Cyprus, Portugal and others were profligate. But the stronger countries of Europe — Germany especially — are equally to blame. They are the countries that practically forced the weaker European countries to adopt the euro, putting them in a position where they could not compete against the stronger economies of Germany and France …

And they are the countries that rammed loans, that are now unpayable, down the throats of those countries.

It’s gotten so bad in Europe, the rise of neo-Nazi parties is astounding.

In Greece, the neo-Nazi “Golden Dawn” party has risen in popularity from 0.3 percent of the Greek people polled in 2009 to as much as 7 percent late last year. A 23-fold increase in just three years.

Germany’s Angela Merkel is now being portrayed in many European publications in Nazi garb.

From the north of Europe to the Mediterranean in the south, fascist and neo-Nazi parties are growing at an alarming rate, gaining over 15 percent of the vote in recent local elections in many countries.

As EU Home Affairs Commissioner Cecilia Malmström recently stated, “Not since World War II have extreme and populist forces had so much influence on the national parliaments as they have today.”

Will Europe See a Civil War?

Unless the Troika backs off the weaker, heavily-indebted countries, which is not likely, yes, I believe Europe is headed toward massive civil unrest and war.

Another aspect that worries me, is Russia. According to Moody’s ratings agency, Russians have $19 billion in Cypriot banks, nearly as much as Cyprus’ entire GDP. Russian banks have an additional $12 billion invested and have loaned another $40 billion to Cypriot companies of Russian origin.

That’s just Cyprus. While there are no clear estimates on how much Russian money, legally or illegally, is spread out over Europe, it’s safe to assume there are boatloads. In 2012 alone, an estimated $56 billion left Russia, much of it going into Europe.

Vladimir Putin is up in arms over the crisis in Cyprus. He will not stand idly by while Russian money is at risk in Europe.

Keep in mind that Russia largely controls the European energy sector. The European Union depends on Russia for more than 32 percent of its crude oil, and nearly 39 percent of its natural gas needs.

Many countries in Europe depend upon Russia for 100 percent of their energy needs.

Germany depends upon Russia for as much as 36 percent of its energy needs.

If Putin feels Russian financial losses in Europe are unjust, I don’t doubt for one minute that he would threaten to retaliate by “turning the lights out” in Europe.

Sadly, based on my work on the war cycles and what’s happening now in the next phase of the great financial crisis and Europe’s sovereign debt crisis, war and massive civil unrest in many parts of the world is a very real threat. And it’s already starting to impact the financial markets.

It’s a major geo-political reason why the dollar is now breaking out to the upside, precisely as I have been forecasting.

And, it’s a major reason behind my forecast for a much higher U.S. equity market. Frightened capital from all over the world will pour into the U.S. and emerging markets of Asia.

To play the long side of the dollar for a strong rally this year, consider investing in the PowerShares DB US Dollar Index Bullish Fund ETF (UUP).

Per my previous suggestion in my February 11 Money and Markets column to purchase a small core position in the SPDR DJ Industrial Average ETF (DIA) at $134 or better: Raise that price to buy now on a pullback to the $141 level.

If and when filled, place a stop to reduce risk at $105, on a good-till-cancelled basis.

Lastly, despite the prospects for massive civil unrest around the world and even war this year, commodities are not yet out of the woods and are instead still largely in a disinflationary trend. That includes the precious metals.

The chief reason is the stronger dollar. Plus, the austerity measures and rising taxation that’s occurring around the globe. That’s sending most money to the sidelines or into liquid equity markets.

While gold will shine again someday soon, it’s still not time to back up the truck on the precious yellow metal.

Best wishes, as always, stay tuned …

Larry