India. Pakistan. Neighbours.
For over 70 years now, they have been pushing and taunting each other. Like kids with a score to settle in the playground.
Every now and then, their quarrel escalates. That’s when they use their bare hands to exchange open-palm strikes. Their slaps bounce off each other’s skin, stinging, bruising, creating noise — but there’s no serious damage.
Incredibly enough, both kids have actually brought weapons to this confrontation. Swords with blades sharpened. Lethal. Deadly. Ready to go.
But so far, they have kept these weapons sheathed in their scabbards. Displayed prominently but never actually used.
One kid yells, ‘If you touch me one more time, I will draw my sword.’
The other kid replies, ‘If you draw your sword, I’ll draw mine.’
‘I’m not bluffing. I’ll use it.’
‘Go ahead. So will I.’
There’s more pushing. More taunting. More slapping.
Source: CNN
What is this fight about, really?
Well, it’s about national pride. Religious identity. And a cultural cringe that stretches back centuries.
So, at the moment, here’s what’s at stake in South Asia:
- India is the world’s largest democracy, as well as the world’s sixth-largest economy. It has an arsenal of over 100 nuclear weapons.
- Pakistan is a democracy as well, but it is much smaller, with a population of only 220 million people. It, too, has an arsenal of over 100 nuclear weapons.
Since 1947, India and Pakistan have fought four official wars — mostly over the fate of the Kashmir region. They have also waged numerous secret wars involving spycraft, sabotage, and terrorism.
Yes, both nations have nuclear parity. This means that even though India has a larger military, any difference in size is negated. Pakistan has as much destructive power as its rival.
In theory, both India and Pakistan could vaporise each other within 5 to 10 minutes. Because they are neighbours, death could be frighteningly immediate. A nuclear launch by one side would immediately trigger a retaliatory strike by the other.
So…both countries perpetually live under the spectre of the mushroom cloud. It’s about mutually assured destruction. Quid pro quo.
Sounds depressing, isn’t it?
Maybe.
But, believe it or not, the presence of nuclear weapons could actually be a reason for stability, if not optimism.
It’s clear that neither India nor Pakistan has a decisive advantage. So both have made a conscious decision to limit their expressions of violence to what is manageable.
They have chosen ‘limited war’ instead of ‘total war’. And for all their bluster and brinkmanship, they have managed to toe this line successfully.
The evolution of war
Source: CNN
Look beyond India and Pakistan.
There’s China and Russia.
The mainstream media would have you believe that we’re on the brink of total war, should things escalate. And if they do, nuclear weapons are going to start flying any moment now.
It’s World War III. The Apocalypse. The End of Days.
Is this factual? Or is this an exaggeration?
Well, watch out: pundits on both on the left and the right tend to be wrong about existential threats. In fact, there’s an entire cottage industry of ‘experts’ devoted to our collective anxiety about the future. This is no doubt amplified by the presence of 24/7 breaking news and social media.
‘Doomscrolling’ gets eyeballs — but more often than not, it can be a lot of hot air, which serves to obscure rather than reveal.
So…I’m going to suggest something quite different here.
It’s actually so obvious, you’re going to be surprised that you didn’t see it before.
Here’s the truth: you have already survived World War III and World War IV. You were just too busy living out your life to notice that these conflicts were happening.
Are you feeling confused?
Well, let me clarify:
- World War III was the Cold War.
- World War IV was the War on Terror.
A mind-blowing revelation? Indeed.
Rest assured, I didn’t pluck that idea out of nowhere. It actually comes from Norman Podhoretz, a political scientist who wisely observed that the nature of warfare has changed.
When we think of a world war, we tend to think of total war. Like what we saw happen during World War I and World War II. Large armies steamrolling over continents. Mechanised death on a colossal scale. Global destruction.
That’s the cliché.
But that was then. This is now.
Today’s combatants are different. They regularly operate in the shadows, without displaying flags or wearing uniforms. They prefer to use black ops and subversion, fighting asymmetrically, as well as through proxies.
In 1962, President John F. Kennedy correctly predicted that we would experience a transition from total war to limited war. His words are prophetic:
‘Korea has not been the only battle ground since the end of the Second World War. Men have fought and died in Malaya, in Greece, in the Philippines, in Algeria and Cuba, and Cyprus and almost continuously on the Indo-Chinese Peninsula. No nuclear weapons have been fired. No massive nuclear retaliation has been considered appropriate.
‘This is another type of war, new in its intensity, ancient in its origin — war by guerrillas, subversives, insurgents, assassins, war by ambush instead of by combat; by infiltration, instead of aggression, seeking victory by eroding and exhausting the enemy instead of engaging him. It is a form of warfare uniquely adapted to what has been strangely called ‘wars of liberation,’ to undermine the efforts of new and poor countries to maintain the freedom that they have finally achieved.
‘It preys on economic unrest and ethnic conflicts. It requires in those situations where we must counter it, and these are the kinds of challenges that will be before us in the next decade if freedom is to be saved, a whole new kind of strategy, a wholly different kind of force, and therefore a new and wholly different kind of military training.’
So, here’s how the battlespace has evolved:
- The Cold War — World War III — was marked by proxy warfare. You can see this in the American experience in Vietnam, as well as the Soviet experience in Afghanistan. In both cases, the superpowers chose to confront each other indirectly — fighting by using local allies on the ground.
- Meanwhile, the War on Terror — World War IV — was marked by force multipliers. You can see what a handful of irregular operatives achieved on 9/11, as well as in the Mumbai attacks in 2008.
- The conflict in Ukraine may well be the culmination of both proxy warfare and force multipliers. Sure, the Russian military juggernaut has conventional might — but the Ukrainians have unconventional courage, bolstered by material support from the West.
So, war in the 21st century will be quite different from war in the 20th century.
This is War 2.0, augmented by information technology. It will be fought virtually in cyberspace, as well as through automation by drones. Mass media will take centre stage, making the undercurrents of ideology almost be as powerful as bullets and bombs.
Foreign policy
Yes, it’s true that violence is ugly. And most of us who consider ourselves civilised don’t like to consider it as a valid option. But violence is an inescapable part of international relations.
You could say it is the most direct and unfiltered form of communication. Nation-states often use the threat of violence to negotiate. To persuade. To extract concessions.
Mao Zedong said it plainly:
‘Political power grows out of the barrel of a gun.’
Source: The New Republic
President Richard Nixon arguably took Mao’s idea one step further.
He fully embraced the ‘madman theory’. He made a show of behaving erratically. He wanted the Communist Bloc to believe that he was so volatile, he could unleash nuclear weapons at the slightest provocation.
By some accounts, Nixon’s strategy worked. He was successful in keeping America’s enemies off-balance.
In recent times, Donald Trump is perhaps the most well-known practitioner of madman theory. However, he only went as far as to engage in a trade war with China, not an actual hot war.
Perhaps Vladimir Putin is the true heir to Nixon? He certainly is the flavour of the moment. He has created doubt and confusion through what he calls a ‘special military operation’ in Ukraine.
As a former KGB man, he knows the value of sowing just the right amount of intrigue. It’s a strategy that has served him well so far.
The bottom line
The United States. China. Russia. India. Pakistan.
The Great Game.
These are superpowers playing in a sandbox, jostling as they try to carve out their spheres of influence.
They use controlled aggression, and for the most part, it is theatrical — leaving just enough room to tease the imagination. It’s been this way for over 70 years now.
Pushing. Taunting. Slapping.
Lather. Rinse. Repeat.
So, are you reading today’s headlines and feeling fearful?
Well, don’t be.
Look beyond the headlines.
As an investor, you can take comfort in the fact that history is on your side.
In the long run, the stock market has proven to be remarkably resilient. It has bounced back from every crisis event imaginable. It has even bounced back when the Apocalypse itself looked imminent:
Source: LPL Research
Of course, geopolitical fear — like what we’re seeing right now with the conflict in Ukraine, as well as the contest over Taiwan — is never easy to deal with emotionally.
But, well, if you need wisdom and courage, listen to Samwise Gamgee from The Lord of the Rings:
‘It’s like in the great stories Mr. Frodo. The ones that really mattered.
‘Full of darkness and danger they were, and sometimes you didn’t want to know the end.
‘Because how could the end be happy?
‘How could the world go back to the way it was when so much bad happened?
‘But in the end, it’s only a passing thing, this shadow. Even darkness must pass.
‘A new day will come. And when the sun shines it will shine out the clearer.
‘Those were the stories that stayed with you. That meant something. Even if you were too small to understand why.’
Humanity, for all its flaws and frailties, has proven itself to be adaptable and forward-looking. Which is why the sun will still be shining and the birds will still be singing 12 months from now.
So, here’s the upside: macroeconomic disruption might just offer savvy investors the rare opportunity to pick up quality assets at a discount. Especially if you’re looking at safe havens like the USA, the UK, and Australia.
If you want to place a bet, why not bet on optimism and hope?
From microchips to shopping malls, from self-drive cars to vineyards — we’re currently exploring a whole range of assets that we believe exhibit strong value.
If you qualify as an Eligible and Wholesale Investor and would like to have a chat with us about what’s happening in the world, now’s a great time to do so.
Regards,
John Ling
Analyst, Wealth Morning
(This article is general in nature and should not be construed as any financial or investment advice. To obtain guidance for your specific situation, please seek independent financial advice.)