The Graveyard of Empires

Every man, woman, and child for themselves... The costs of war... The power (and money) changing hands... The graveyard of empires... The Afghanistan fallout is just beginning... China gets 'friendly'... 'Common prosperity' weighs on Chinese stocks...

Any way you slice it, the images and reports from Afghanistan have been heartbreaking...

On Sunday, we saw hundreds of Afghans rushing the tarmac at Hamid Karzai International Airport in Kabul, desperate to board a U.S. military jet about to flee the country...

Hundreds of other Afghans packed inside the U.S. Air Force C-17 transport plane bound for Qatar, side by side with nothing more than the clothes they were wearing. They were the fortunate ones.

Rather than face an uncertain future under militant rule, a few men clung to the bottom of the giant American plane as it departed... And in a truly horrifying image, at least a few fell to their deaths soon after the plane lifted from the runway.

Earlier, Afghanistan President Ashraf Ghani privately flew out of the country, allegedly with piles of cash in hand... It wasn't exactly the same as the captain going down with the ship. (He resurfaced in the United Arab Emirates today.)

It was chaotic all day long on Sunday in Afghanistan as the Taliban gained control of the country in just 10 days... And the organization did so just a couple of weeks ahead of the U.S. and NATO's self-imposed August 31 deadline to pull troops from the country after two decades of war.

It became every man, woman, and child for themselves on the ground...

As the Associated Press reported, people were trying to get on more than just the U.S. jet at the Kabul airport. They were also boarding commercial aircraft, too...

Shafi Arifi, who had a ticket to travel to Uzbekistan on Sunday, was unable to board his plane because it was packed with people who raced across the tarmac and climbed aboard, with no police or airport staff in sight.

"There was no room for us to stand," said the 24-year-old. "Children were crying, women were shouting, young and old men were so angry and upset, no one could hear each other. There was no oxygen to breathe."

After a woman fainted and was carried off the plane, Arifi gave up and went back home.

No one really knows what the future will bring to Afghanistan in the short term...

Taliban leaders are striking a soft public tone, saying they won't stop people looking to leave the country... And they're promising rights for women, the press, and government officials.

Yet, in private, it appears to be a different story... Other Taliban militants have been reportedly going door to door in the country, looking for – and then beating or killing – U.S. sympathizers or opponents to the group.

Evacuations are continuing. Thousands have left the country over the past few days.

It's all unfortunately symbolic...

Ancient Greek philosopher Plato is often credited with saying, "Only the dead have seen the end of war." Way back then, the idea was that many Greeks considered wartime normal and peace the exception... So essentially, dying was the only way to get out of war.

But when we saw Plato's line making the rounds on the Internet this week, we took another truth from his words... War is costly – in terms of lives and for anything else associated with it.

Over the past 20 years – since the September 11, 2001 terrorist attacks that were the catalyst for the decadeslong war in Afghanistan – more than 775,000 Americans were deployed to fight in the country at least once.

I (Corey McLaughlin) know several people who did multiple tours in the country, as I'm sure many others do... And I am forever grateful for their service. Each has their own story to tell.

More than 20,000 Americans were wounded, and 2,448 American service members and 3,846 U.S. contractors paid the ultimate price – including more than 1,500 military deaths at the height of fighting between 2009 and 2012...

And over the past two decades, an estimated 66,000 Afghan military and police and 47,245 Afghan civilians were killed as well.

Beyond the loss of life, there's the financial cost – roughly $1 trillion...

According to the Military Times, the U.S. government spent $837 billion fighting the war. In addition, it spent approximately $145 billion trying to rebuild the country, with $83 billion of that total put toward developing and sustaining an army and police force.

(When combined with the simultaneous Iraq War from 2003 to 2011, the direct price tag is closer to a debt-financed $2 trillion. And that's not including an additional $2 trillion estimated to be spent on veterans' health care and other costs over the next several decades.)

Many of those U.S.-paid-for resources in Afghanistan (buildings, guns, vehicles, and people) are now in the hands of the Taliban... And perhaps even worse, White House officials said they were surprised at how quickly the enemy took the country over from Afghan forces.

Apparently, after 20 years, U.S. leaders still didn't have a grasp of reality on the ground. Yet many others could see it coming, as the Military Times reported...

In his book, The Afghanistan Papers, journalist Craig Whitlock wrote that U.S. trainers tried to force Western ways on Afghan recruits and gave scant thought to whether U.S. taxpayer dollars were investing in a truly viable army.

"Given that the U.S. war strategy depended on the Afghan army's performance, however, the Pentagon paid surprisingly little attention to the question of whether Afghans were willing to die for their government," he wrote.

There's enough blame to go around on so many levels for how the exit from Afghanistan has been handled. For now, we'll simply say that on a practical level, the chaos and all the heartbreaking and embarrassing pictures broadcast around the world could have been avoided...

The only reason a U.S. Air Force plane was leaving from the public airport in Kabul is because American forces voluntarily left their Bagram Airfield military base en masse under the cover of darkness one night in early July.

That move surprised many people in the country, including thousands who supported the U.S. effort. Bagram's Afghan commander said the U.S. forces left the airfield by literally shutting off the electricity and not telling anyone they were leaving.

In the end, Afghanistan – known to some as the "graveyard of empires," as Bill Bonner, a longtime friend of the Digest, noted on Monday – has claimed another victim. And the precedent for what typically follows is not good. As Bill wrote...

We doubt this episode will be an exception.

The British left Afghanistan in 1919, after 80 years of frustrating warfare. Less than 20 years later, the British empire was, essentially, finished.

The Soviet Union gave up trying to pacify Afghanistan in 1988; two years later, the Soviet Union collapsed.

And now, it's America's turn.

All of a sudden, power (and money) is changing hands again...

A rejiggering of geopolitics – involving the U.S., the Middle East, and as we'll explain, China – is unfolding in real time... And this shift could ultimately reshape the global economy and markets years down the road.

First, let's point out how, financially, the Taliban has managed to fight the U.S. and maintain power and strength over the past 20 years. Most of the organization's money and resources have come from two homegrown economic sources...

1. Drugs
2. Mining

As Hanif Sufizada, an analyst with the Center for Afghanistan Studies at the University of Nebraska Omaha, explained in a report last year, the Taliban made more than $400 million from the drug trade in 2020 (which is legal if you're part of the Taliban)...

Afghanistan accounted for approximately 84% of global opium production over the five years ending in 2020, according to the United Nation's World Drug Report 2020.

Much of those illicit drug profits go to the Taliban, which manage opium in areas under their control. The group imposes a 10% tax on every link in the drug production chain, according to a 2008 report from the Afghanistan Research and Evaluation Unit, an independent research organization in Kabul. That includes the Afghan farmers who cultivate poppy, the main ingredient in opium, the labs that convert it into a drug, and the traders who move the final product out of country.

Moreover, mining operations in Afghanistan's mountainous regions are lucrative as well. These operations pulled in more than $400 million in 2020, according to the Taliban's Stones and Mines Commission. As Sufizada said...

Mining iron ore, marble, copper, gold, zinc and other metals and rare-earth minerals in mountainous Afghanistan is an increasingly lucrative business for the Taliban. Both small-scale mineral-extraction operations and big Afghan mining companies pay Taliban militants to allow them to keep their businesses running. Those who don't pay have faced death threats.

Another $160 million in 2020 revenue for the Taliban was chalked up to "extortion" and taxes. It's hard to imagine that these or any other sources of funding will go down now that the group has complete control over the country.

In other words, the same group that harbored Osama bin Laden is only going to get richer with the U.S. gone from Afghanistan. And now, the leaders of the world's second-largest economy – China – are ready to swoop in to fill the power vacuum...

Already, China is promising 'friendly and cooperative' relations with the Taliban...

Unlike the U.S., China is keeping its foreign embassy in Kabul open... And the Chinese government is already signaling a close relationship with the Taliban in the weeks and months ahead. In fact, just three weeks ago, Beijing officials hosted Taliban leaders in China...

Afghanistan and China share 50 miles of border on China's Western end... Chinese officials wanted security assurances that there won't be any foreign-planned attacks there – where the country has infamously held more than 1 million Muslims in detention camps...

At the same time, it's easy to imagine that in exchange for "peace" on its border, China may guarantee buying certain in-demand natural resources from its neighbor...

Analysts believe Afghanistan is home to between $1 trillion and $3 trillion worth of rare-earth metals...

Kyle Bass, the founder of Hayman Capital, said on CNBC yesterday that the Pentagon believes one province in Afghanistan has the largest lithium deposit in the world.

Lithium, among other things, is a major component of electric-car batteries... And the other metals we mentioned earlier can be used in everything from cell phones to planes and other technologies. More from Bass...

When [the U.S.] thinks about central Asia, we always look through the Afghanistan lens. When China thinks about central Asia, they think about resources and their proximity...

Bass later wrote on Twitter that one of the biggest U.S. Special Forces fights of all time was fought for power of an illegal rare-earth mine in the Shok Valley of Afghanistan... A warlord was seeking to build his own empire based off the wealth in the ground.

In another part of the fallout, Chinese state-run media are having a field day...

Specifically, they're noting that the U.S. won't fight if China decided to take over neighboring Taiwan... The country won its independence decades ago in the Chinese Civil War, but Chinese President Xi Jinping wants it back under communist rule.

The decades-old Taiwan Relations Act of 1979 makes the U.S. an ally of Taiwan, and it requires the U.S. to provide the country with arms.

Notably, as Stansberry NewsWire editor C. Scott Garliss talked about in his interview in yesterday's Digest with Lawrence Lindsey, Taiwan is the world's major producer of semiconductors – the essential part of so much technology these days.

It's not a coincidence that China is also doing military drills in the waters near Taiwan as this all unfolds. Pair that with its frosty relationship with the U.S., and we can see the battle lines being drawn...

In the meantime, Chinese stocks are still taking a licking...

Xi's war against China's tech companies – and plans for what sounds like a redistribution of wealth – continues to roll on...

At an economic meeting yesterday, Xi emphasized the idea of "common prosperity" one day after Chinese regulators published a new set of rules banning anticompetitive practices. As Stansberry NewsWire analyst Nick Koziol reported...

Specifically, the rules crack down on how Chinese Internet giants can use their positions to disrupt competition and hurt "fair transactions" in the market.

These new rules are weighing on Chinese shares today, with the country's markets falling more than 1% over night. And it has continued to keep Chinese American Depository Receipts ("ADRs") – like Alibaba (BABA) – under pressure in U.S. trading today.

We simply don't know when this regulatory wave will end...

As we've reported for several weeks, the uncertainty and resulting panic is weighing on shares of Chinese-based companies – most notably tech names.

As our colleague Dr. Steve Sjuggerud wrote in Monday's edition of his free DailyWealth e-letter, the KraneShares CSI China Internet Fund (KWEB) – which holds names such as Alibaba and JD.com (JD) – has crashed 53% since its February high. Take a look...

Just yesterday, Steve and analyst Brian Tycangco sent an urgent update for True Wealth Opportunities: China... They alerted subscribers to sell shares of another tech giant, one of the largest computer-game publishers in China.

As we wrote in the August 4 Digest, Chinese leaders have video games (some say "spiritual opium") in their regulatory sights... And that has sent related stocks down across the board.

Shares of this company recently hit Steve and Brian's recommended stop loss... Again, this is a practice that comes in handy and takes emotion out of the equation. And despite the uncertainty in China, subscribers still locked in a 78% gain on this recommendation.

Returns like those are a big part of the reason Steve says he still believes in the long-term opportunity for investors in Chinese stocks. As he wrote in Monday's DailyWealth...

It has been a rough few months for investors in China... But it won't last forever...

The country continues to experience incredible economic growth. And its markets are maturing rapidly.

There will be plenty of more bumps along the way. And it's possible the regulatory changes we've seen aren't over. But I urge you not to give up on China for good.

Instead, Steve says, you want to have a plan...

If you're going to invest in China, you need to follow your stops. You need to be willing to walk away when things get too wild (like right now). But you also need to be willing to get back in when things change.

And Steve and Brian will do just that... They always do.

China clearly has designs on overtaking the U.S. as the world's top power... And the country, albeit with communist leadership, is already following the path. As the U.S. leaves the graveyard of empires, it looks like China is not afraid to make more visits.

We're sure we won't get to the end of this saga anytime soon.

New 52-week highs (as of 8/17/21): AbbVie (ABBV), Brown & Brown (BRO), Comcast (CMCSA), CoreSite Realty (COR), Quest Diagnostics (DGX), Hershey (HSY), IQVIA (IQV), Johnson & Johnson (JNJ), Lonza (LZAGY), Novo Nordisk (NVO), Procter & Gamble (PG), ResMed (RMD), ProShares Ultra Health Care Fund (RXL), Sea Limited (SE), Thermo Fisher Scientific (TMO), ProShares Ultra Utilities Fund (UPW), and Consumer Staples Select Sector SPDR Fund (XLP).

In today's mailbag, a subscriber highlights an important distinction about Dr. Lawrence Lindsey's book Currency War... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"When I saw the book title, Currency War, in the Stansberry Digest, my thought was, 'I have that book.' My book was written by Jim Rickards in 2011 and reprinted in 2012 and titled Currency Wars. Not sure that is important except some folks may not consider the book by L. Lindsey, assuming it may be some of the same information already published. You did note it is fiction with a storyline of the escalating conflict between the United States and China. So perhaps different enough to read." – Paid-up subscriber Ann W.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 18, 2021