Reports 2001

Index 2001

– December 2001, War against terrorism, a never ending story

– November 2001, Fighting Terrorism

– October 2001, Terrorism, consequences and implications

– September 2001, A note on Warfare

– August 2001, Investing in difficult times – Missile Defence

– July 2001, A note on Stealth

– June 2001, A note on the Fundamentals and Principels of Business Strategy

– May 2001, A Financial Reassesment

– April 2001, Emerging Flashpoints Q1 2001

– March 2001, South America, assessed

– February 2001, The Future of the Democratic Republic of Congo, DRC

– January 2001, Portfolio management in the new century

December 2001

December 2001

War against terrorism, a never ending story

War against terrorism

The declared war on terrorism by the USA after the atrocious attacks on 11 September 2001, seem to deliver its first tangible results as the rule of the Taliban in Afghanistan, a major supporter of Islam inspired terrorism, seems to be on the verge of collapse.

The opposition groups in Afghanistan organized in the Northern Alliance, or as they like to be called right now the United Front, were able with US air support and technical advice of US and British special forces, to retake large parts of Afghanistan. With the exception of some small Taliban units moving around in the countryside and the area around the city of Kandahar, the country is under control of the Northern Alliance. The situation at Kandahar is very unstable and the anti Taliban forces could have taken the city as this report is going to press.

The Northern Alliance could through military victories and especially by the defection of local groups, warlords, to their side retake much of the territory they lost in the last 5 to 6 years. All major cities with the exception of Kandahar is under their control, and the fall of Kandahar does only seem to be a matter of time. There are however still some Taliban units operating in the countryside and ocassionally killing some foreign journalists if they happen to cross their roads but the effectiveness of those Taliban forces as a fighting force is very doubtful.

The fight against terrorism is slowly impoving as some high ranking people of the Al Qaeda network have been killed by the air attacks or in combat with the Northern Alliance. The where about of Osama bin Laden and Mullah Mohammed Omar the leader of the Taliban are not known but they are expected to be somewhere around Kandahar and Bin Laden could however also eventually be around the city of Jalalabad or Tora Bora in the eastern Nangahar province. Bin Laden and the Al Qaeda have many friends around Jalalabad and Tora Bora and they took over and have build extensive networks, caves, supplies and armaments around those two areas which are difficult to locate, to reach and to target.

The instability in Afghanistan becomes clearly visible in the the fight for Kandahar where local Pushtun and Northern Alliance forces are about to start a fight for the city. Local Pushtun groups which have defected the Taliban to the Alliance are moving towards Kandahar to fight the remnants of the Taliban regime, approximately 12.000 Aghans and 5.000 Arabs, Pakistanis and Chechens which voluntarily fought with the Taliban. The fight for Kandahar could become intensive as the Taliban promised to fight until death and they would not surrender. This is very likely the case with the 5.000 foreigners fighting at the side of the Taliban but rather unlikely for the Afghans which would most likely surrender, change sides, if the fight delivers no hope on a victory. Especially as the Afghans are most likely to get some amnesty offered if they would surrender. The international volunteers are worser off as they will face a much harder treatment if not being executed.

The city of Kandahar will therefore fall rather quickly and the Northern Alliance and the local Pushtun will take over control. The swiftness of the fall of Kandahar will become faster as the Afghan, Pushtun, fighting groups will change sides and join the Northern Alliance.

The US fight against the Al Qaeda network is moving much slower as it is difficult to unravel and at the moment they are only able to freeze some financial assets of the Al Qaeda network in a number of allied countries and make some arrests of people who allegedly supported the Al Qaeda but none to little success in eliminating parts of the network itself.

A never ending story

The war on terrorism might develop in a never ending story as the definition of terrorism is fraud, it can be used by every government to depict any group which is considered hostile to their rule. It remains valid that the terrorist for one party is a freedom fighter for the other.

The large number and diversity of terrorist groups is one of the major causes which make any war against terrorism a never ending story. Every group has its own history and sometimes even a justifiable case to fight for. This is the evil of terrorism. The bad political, economical and social situation without any chance on improvement of large groups in the world will fuel the large number of terrorists organizations. And for those people terrorism seems very often the only way for improvement.

The difficulty of defeating terrorism becomes clear with the Al Qaeda network which can not be destroyed by the operations in Afghanistan, the freezing of assets or the rather indiscriminatory arrests of suspected Arabs. Even if the leadership of the Al Qaeda is eliminated the network might be still operational in other countries and able to commit atrocious terrorist attacks in the West. The cell structure and the relatively freedom and independence of the cells make each cell a danger in itself and above all difficult to destroy.

The advantage of the operations in Afghanistan is that the support network of the Al Qaeda will be damaged and will have some difficulties, if not great difficulties, to operate as efficiently as before. The targeting of the command structures, including the leaders of the Taliban and the Al Qaeda, will make a coherent defence, fight, and the planning and execution of terrorist attacks impossible.

It is therefore very likely that the Taliban will be defeated within a couple days to about one month. The Taliban will not be able to resist the increasing pressure of the Northern Alliance and especially the US bombings of targets of importance.

The landing of US marines in the vicinity of Kandahar delivered a new outlook on the conflict. The US forces are much better trained and armed than the Taliban or for that matter the Northern Alliance. If the Taliban continues the conventional kind of warfare thing around Kandahar they will quickly learn that they are no match for the US armed forces. The Taliban will therefore, most likely, be defeated on the short term and with some luck the US forces can capture Bin Laden, terrorists of the Al Qaeda network and the leadership of the Taliban. The US will however not have infinitive time to reach those goals.

The US forces in Afghanistan just have to be aware that they live on borrowed time in Afghanistan. At the moment they receive support from the population but this will change very fast as the majority of the Taliban units will be defeated. As quick as the Northern Alliance have defeated the Taliban as a fighting force the US will be treated as an unwelcome guest and needs to be removed from Afghan territory. And this could be done with every mean available to the Afghans,

The US government can delay the departure from Afghanistan by using an UN protection force which should protect the transition of Afghanistan to a peaceful nation or they can even use the different groups in Afghanistan in a dangerous divide and rule game but in the end they have to make the decision to leave even if their goals have not been accomplished. The British adagium on Afghanistan is still valid, to conquer Afghanistan is not that difficult but staying there or getting out is the difficult part.

Even if the best case scenario is coming through and the Afghans manage it to come together and govern the country successfully, the problem of terrorism is still present in the world and will be far from defeated. There are still many hard feelings between the extremist part of the muslims and countries which allegedly are working against the muslims or a supporting the countries which do so.

The war on terror will become more difficult as the Taliban forces have been defeated. After the victory of the Northern Alliance the US forces will be unnecessary for the Alliance and not welcome anymore. By that time they will need to have catched the people they want or become some kind of occupation force in Afghanistan. And that is not a pleasant forecast. A long term involvement with the presence of US forces in Afghanistan should be avoided. In any way the war on terror will be much less focused when the Taliban is defeated and whether or not Bin Laden and the Al Qaeda have been eliminated is not that important to the Northern Alliance.

The strength of Bin Laden and the Al Qaeda will be decimated after they have lost their base in Afghanistan as no other country will deliver the same kind of safety and support to operate. Even if Bin Laden would survive with parts of its Al Qaeda network the impact will be much lesser as their capabilities have been reduced and they will remain targeted by many countries in the world. This will be a clear victory and an advantage to the security in the world. But terrorism is still around. And any fight will be more difficult as a clear target with the same standing as Osama bin Laden will be not around.

A shift to Iraq, Sudan, Somalia and Jemen, as countries which support terrorism will be much more difficult as the international support for such operations will be lesser. It will also be much more difficult to proof that those countries support terrorism or the much used word of being a threat to the world security. It might be that those countries consider it as that they are just protecting their national interests, the terrorist-freedom fighter dilemma. It is there by difficult to make a case against one or more of those countries, e.g. that they are directly connected to the kind of terrorism as of the 11^th September and even more important without being perceived as a threat by the neighboring countries.

Another problem with those four countries is that they have little to none clear targets, in the case of Somalia, there is even no strong central government, it are relatively large countries with little infra structure and industries and it will demand a supply of forces which would possibly even overstretch US capabilities.

There are at the moment no countries which support terrorism like the Taliban controlled Afghanistan did, even not the four above mentioned countries.

The four countries did and will not support the US activities in their war against terrorism and they might even condone some organizations which are considered by some countries as terrorist organizations but those organizations are not like the Al Qaeda network. And the four groups are most likely viewed by the above mentioned countries as freedom fighters who fight for a legitimate cause.

At best there are some Al Qaeda cells in those four countries, possibly dangerous, but without support from the Al Qaeda itself much less dangerous and defeatable with other means, read political and economical pressure towards countries which do not prosecute them of even allow them to live in those countries.

What will be around are many small groups with smaller goals, smaller attacks but sometimes with much more support in the population or in the world. A number of those groups are viewed as freedom fighters, fighting for the good, by some countries.

The terrorist organizations after Al Qaeda

The terrorist organizations which remain active in the world are the familiar kind like the Hamas, Jihad and Hizbullah. Groups which have smaller goals and do not have any ambitions to become a worldplayer, e.g. start a woldwide conflict between the western world and the islamic world.

The three above mentioned groups are extremist islamic organizations which have gained a lot of influence in the Middle East. Beside their military wings which commit terrorist acts they have a social network providing education, healthcare, food and other social support services to the people living in the area. This makes them very popular with the population which do not have many hopes on any improvement.

Combatting terrorism is therefore a large part fighting the poverty in the region. And of course the political injustice in the region. The case of the Palestinians is a prime example of doing everything wrong. The creation of a Palestinian nation in the region is an absolute necessity to pacify the region and eliminate the organizations like the Hamas, Jihad and Hizbullah.

The starting point to come to a conclusion should not be the current situation but the division plan of the UN in 1948 with the creation of the state of Israel. From this plan the division should be arranged with some small changes to the division to be finalised at a summit. But this is an other story.

November 2001

November 2001

Fighting Terrorism

Terrorism

The acts of aggression of a generally small group of people who want to make a statement about in their opinion an unjust situation are mostly defined as terrorism. The act has to be visible and is mostly pretty bloody to get as much attention as possible. All to often innocent bystanders, civilians, are the victims as government officials are more difficult to get and the impact would not have been that dramatic.

Terror organizations, no matter their scale, are all to often difficult to eliminate as they present a subgroup with their own culture and values. If they are used to work covertly the members will be unknown. This is especially true if the organization has been forced to operate underground as the group was considered hostile and dangerous to the society or better the government in charge. The existing members from the early period will be known but new recruits, people, will be unknown and will only become visible if caught after an attack.

The organization of terrorist groups

There a large number of terrorist groups in the world. Many countries have been hit by the actions of those groups. The terrorist group is the first stage of a rebellion against the sitting government and if the terrorist group becomes larger and the ideas find widespread following and acceptance in the population the next stage of taking over power can be started.

The majority of terrorist groups work according the principle of Lenin of an advanced guard who is fighting the suppressive government with all means at their disposition. The group has to be very secretive to avoid being detected and eliminated.

To be that secretive the majority of the terrorists work out of a cell structure with numerous cells working throughout a country, or for that matter all over the world, with the goal of undermining the government. Every cell is doing that what is supposed to be beneficial to the group’s cause. And the strength of the cell structure is that no one knows to much of other cells and the structure of the organization making infiltration and eliminating the terrorist group more difficult and time consuming. The cell leader knows one member of one other cell but nobody knows about the whole group, or better the structure/organization of a terrorist group. There are essentially two kind of operations, they can be local and/or executed by one cell without other parts of the organization having any knowledge of the act being planned or who did it until the act is claimed. Even the leadership can have no knowledge of the act being planned and would only be informed if the act is executed or just before execution.

Or the operation is carefully planned and executed by the leadership with one or more cells supporting the execution often without knowing what each person and each cell is doing. The common procedure is that one group, cell, is doing intelligence work about a project, an other group, cell is preparing places to stay and transport at the location, an other group, cell, is responsible for the delivery of the weapons and explosives and finally an other group, cell, is responsible for the attack. With this construction only the last group will be informed about what and when to attack, making an interception much more difficult. All other groups are only supporting and they do not know much because they do it more often without that something happens, it happens at a much later moment or it is considered not worthwhile by the leadership.

The second kind of operation is the most dangerous as it is planned and executed by professionals and is therefore more effective and more difficult to end and eliminate. Security is at all times maintained, information is gathered about several objects without any certainty that the object will become a target for an attack. Houses and cars are leased and bought more often even as an investment opportunity. Weapon storages are created also more often for possible later use and several small storages are more difficult to eliminate than a couple of large storages.

The picture gets even more dangerous as different terrorist groups in the world, with all different and little to non common interests occasionally meet, co-operate and support each other. This co-operation is out of the need that all are operating against a mostly more powerful opponent, e.g. a government of a country, Through the rule of interdependency between the nations of the world, countries in the world co-operate and so do the terrorist groups. Weaknesses can be improved and modus of operandi can be exchanged to improve the fight against the opponnent.

The communication within the group and between different groups is face to face or through covert means like the internet. The internet with websites and chatboxes offer many opportunities to hide and exchange information between members of the group and between groups. Telephone, fax and e-mail messages are prone to being intercepted by the security services around the world and it makes the identification and location of the people messaging each other more likely.

The elimination of terrorist groups

Terrorist groups are difficult to eliminate as they are covering themselve and use all methods available to evade being captured. If the terrorist groups belong to a non-western culture the identification and capture of the group will become even more difficult.

The apprehension of a terrorist group is a time consuming affair as getting information on a group is difficult and capturing one person or even a couple of cells will not damage the group that much. The elimination of terrorist groups is a long and structured process, you must identify the group, its goals, the structure, the operation methods and the relations outside the group. The creation of such a profile is possible by signal intelligence, SIGINT, communications intelligence, COMINT and of course human intelligence, HUMINT. SIGINT and COMINT are possible without that much difficulty. Both are in the preparation of the profile very helpful. To get more delicate information on for example structure and methods HUMINT will be necessary. HUMINT can deliver the information needed to eliminate a terrorist group.

The placing of covert operatives in terrorist organizations is however a dangerous, difficult and time consuming affair as the operative has first to enter the group and subsequently has to work his way up the hierarchy in a group.

To enter a group is already difficult as most groups are relatively small, paranoid and mostly know eachother or their families from the region of origin. Especially the non western groups are very incrowd and some relation between the members is present from the beginning.

The operative has to come from the same group to be succesfull and be given time, freedom and support to enter the group. Any pressures to deliver information quickly could be damaging to his position.

If a complete group profile is created the group can be eliminated and the majority of cells can be arrested. This however is not enough as the cause of terrorism has to be eliminated. The causes are mostly in some perceived or actual unfair treatment or situation of a given group of people. This situation must be changed to forego a resurrection of a same kind of group.

The elimination of terror is a case of a political, economical and law enforcement solution. Those three are able to eliminate the causes and the consequences of terrorism. Everything less will only be a part solution.

Afghanistan 2001

The case of the Al Qaeda is an example of the difficulties in defeating terrorism. The Al Qaeda is a highly capable organization with a firm base and an extensive network of cells and with many relations to other terrorist organizations. The Al Qaeda is even more difficult to defeat as it receives the support of a country, Afghanistan.

The situation in Afghanistan is very difficult and dangerous as a country, the dominating group in a country, the Taliban, is actively protecting and supporting terrorist organizations. Or of course in the view of the Taliban, people with the same ideas who fight the unjust treatment of muslims in the world. And as always it just takes a little to perceive a bad treatment. And the Taliban have a missionary conviction, they want to share the faith with as many people as possible.

The Taliban is protecting the Al Qaeda organization led by Osama bin Laden which is supporting and guiding many other muslim organizations in the world. The information on the Al Qaeda is rudimentary as it could operate for a long time without to much control with support of in the first place the Taliban but also with covert support from many fundamentalistic social/relief organizations in Arab and muslim countries.

The Al Qaeda received more attention from the intelligence community in the world as the attacks which were supported by the Al Qaeda became more intensive and the scale of the network of the Al Qaeda became visible. Not withstanding the large scale of the Al Qaeda they became really known, targeted and tracked after the 11 September 2001 attack on the Twin Towers of the World Trade Center and the Pentagon.

The 11 September was the turning point for the Al Quada, before they could live in a protected environment in Afghanistan and with no much opposition from the Arab and muslim world. Afterwards the Arab and muslim countries had to choose a side.

The Taliban and Afghanistan are since then targeted by the international community in general and the U.S. and the U.K. in particular. Air strikes and Special Forces operations have since then be the name of the game in an attempt to destroy the Taliban and the Al Qaeda organization.

The first targets could be reached with little difficulty, the infra structure of the Taliban could be destroyed and some units of the Taliban could be hit but the fighting power on the short term is still more or less intact. The Special Forces raids could create some instability and hit the Taliban but all these actions is anything far away from forcing the Taliban into a defeat.

The operations in Afghanistan will therefore continue as before but with the air strikes changing from the infra structure to Taliban combat units and the front line with the Northern Alliance. The number of targets like infra structure, barracks and headquarters will become rare in Afghanistan. Special Forces will also continue to operate inside Afghanistan and operate as reconnaissance, forward air control and with hit and run operations. And as long as the Special Forces teams are not directly landed into a Taliban unit the number of casualties will remain controllable or acceptable. If casualties can be acceptable.

The esptablishment of camps in Aghanistan to support the operations in the country is a good idea out of a logistic view and to help in an emergency but dangerous as it presents a clear target for the Taliban. Even a camp in the north of the country, in alliance held territory, will present a magnet to all suicide bombers in the country.

The best strategy in Afghanistan is to remain on distance and attack with air strikes and Special Forces operations where and when you please as this will hurt the Taliban the most, they will destabilize the Taliban. The Taliban, the enemy, can be hit and the losses and costs on the own side can be limited. The air strikes are defeating any larger opposition and concentrations of Taliban forces and are like some kind artillery for the Northern Alliance and the Special Forces operating in Afghanistan. The Special Forces operations are the best way to meet the small units of the Taliban without giving the Taliban the advantage of using their geographic knowledge of the country side. The fast in and out operations are like some kind of guerilla war against the Taliban. The Taliban can be ambushed and severely limited in their movement. This kind of warfare is exactly the same what the Afghan resistance did to the armoured dominated Soviet occupation forces from 1980 to 1988 but now the Taliban is attacked without giving a change to fight.

The Northern Alliance can in the same time keep the pressure on the Taliban and conquer some terrain they had lost in previous campaigns against the Taliban. A defeat of the Taliban by the Northern Alliance is at the moment not possible for the Northern Alliance as they are to weak and fragmented to make a big impact on the short term.

The strength of the Taliban is thereby still uncertain as the knowledge about the fighting power, the capabilities and numbers, of the Taliban are not exactly known and the effects of the air strikes are unpredictable. The structure of the Taliban forces, mostly light units, armed with assault rifles, grenade/AT launchers, some artillery and even lesser armored vehicles, makes them very mobile and the effectiveness of air strikes lower than desired. The fighting power of the Taliban should not be underestimated as they remain good fighters in a head on engagement, they have the stamina and the will to fight on if they want. Afghan fighters are battle hardened and willing to take losses, running away is not their game. But the Aghan fighters, or better their leaders can be persuaded to change their minds, e.g. change sides.

The operations in Afghanistan are because of the above mentioned factors a long term affair unless, unexpectedly, the leadership of the Taliban can be eliminated and/or an increasing number of the Taliban forces walk over to the other side. Something not uncommon in Afghan politics that the warlords change sides if it is beneficial for their group or clan.

October 2001

October 2001

Terrorism, consequences and implications

Terrorism

Terrorism has been around since many years, everytime a non-state group, entity, with a political background attacked, this might be government buildings, officials, forces or even civilians, the government talked about terrorism. This criminalised the group which could be described tomorrow as rebels, next week as freedom fighters and next month as a friendly head of state.

Terrorism and terrorists are relative descriptions depending on time and situation what it is. Terrorism can be in some cases legitimate resistance against a suppressive and illegitimate government. Otherwise, the resistance movements against the German occupation in Europe from 1940 until 1945 were also terrorists organizations. And more recently, the Kosovo Liberation Army was in the eyes of Milosevic just a terrorist organization. So the terrorist to the one might be a freedom fighter for the other.

This should give some insight to the words terrorism and terrorists, it are words with many explanations. It should be evaluted every time, if it is terrorism and if it is valid to others too. It is therefore preferred to call the evil with the name instead of something ill defined as terrorism. The use of the word terrorism is acceptable if describing an unacceptable act but if it is to be prosecuted or punished it should be clear who is the target.

Acts of terrorism are usually bloody acts which cause very often many victims and even bigger economical damage. The terrorists act out of an idea of bad treatment and this is in the view of the terrorists the only way to get the attention and change the according to the terrorists wrong or bad situation.

Terrorism is therefore a difficult concept, the cause might be fraud and acts of terrorism can easily get out of control, to many casualties and no connection between target and cause. If this happens terrorism deteriorates to murder.

The attack on the World Trade Center, the Twin Towers, was such an act of murder. The connection between target and cause is non-existent. It was aimed at destroying a symbol of the United States. The WTC represented the economical system of the U.S. but it was only an office building. With many people who had no connection to the politics of the U.S. This act is therefore best described as a criminal act, mass murder, done by a criminal organization.

There are just a few people and/or organizations capable and with the motive to commit such an act. Osama Bin Laden and the Al Qaeda organization is the most likely suspect.

The attack on the WTC was aimed to enrage the U.S. and subsequently to seduce the U.S. government to a reaction which would rally the muslim world behind the causes of the suspected perpetrator Osama Bin Laden. The objectives of Bin Laden are to eliminate the western influence and presence in the Arab / muslim world and protect the muslims all over the world from the infidels. A clash of civilizations is planned by Bin Laden to, in the end, create a muslim world.

The actions of Bin Laden and his organisation Al Qaeda, the base, had mostly nothing to do with the Islam or the protection of the islam. It is and was aimed at the destabilization of the world and is against the peace. The objective of Bin Laden is to create a struggle between the islamic world and the west, which they see as the biggest evil in the world and needs to be eliminated to protect the islamic faith.

Bin Laden and its followers are only a small militant and extreme fraction which calls itself islamic and pure but violates many islamic rules and traditions. If it proves to be true that Bin Laden and the Al Qaeda are responsible for the attack on the Twin Towers of the WTC complex then they would have crossed all lines of political and military opposition and even human conduct, even in times of conflict. They would have place themselve outside any legitimacy and on the same level as other mass murderers in the history of mankind.

The day the world changed

Tuesday, 11 September 2001, will be remembered as the day history took a new direction, as if the new milennium started that day. The near simultaneous attack on the Twin Towers of the WTC and on the Pentagon with hijacked airliners started a new dimension of terrorism. No high tech attack but simple hijacked airliners used as Tomahawk missiles. Effective and deadly.

This act will change the perception of security in the U.S., changing ways of doing things, calling out a national emergency and the U.S. will be looking for protection and security which never can be reached. It is an illusion to find a method against terrorism, especially this kind of terrorism, by physical methods. It will need an advanced and intelligent approach to eliminate this kind of acts or for protection.

All increased security attempts as increased control and privileges for the law enforcement institutions will only limit the freedom, liberties and way of living which are meant to be protected. Those values which are supposed to be so much better than what the perpetrators claim and are willing to enforce. If those values are limited in name of security the perpetrators would gain a success in the end. Not to speak of the economic costs of the increased security measures and the especially the continuation of the feelings of insecurity will destroy all the trust in the market and economy.

The question who committed this atrocious act will be not that difficult to answer. Only a few organizations are able to conduct an operation like the one committed on the Twin Towers and the Pentagon. It will need intelligence capability, funds to finance a long term operation and suicide candidates with some experience in flying an aircraft and which have the basic skills of handling Boeing 757 and 767 aircraft. And above all, the motivation to conduct such an act which would invite the retaliation of the U.S.A. The reaction of the U.S. would be as fast as possible and without any remorse. No country or political organization would be that foolish as the costs would be simply to high. Only a determined organization without any great alliances to established countries or organizations would be able to commit such an act.

The only person who fits to this description is Osama Bin Laden and his Al Qaeda organization. It fits in the policy of Bin Laden to attack the U.S.A. to create a situation in which some kind of clash of civilizations would occur. The Islamic world vs the western world. In this situation he would most likely get the support of many impoverished or suppressed muslims in large parts of the world and become some kind of hero or martyrer if he would be killed. He will not get a majority but the loudest supporters will support Bin Laden. And in any case many will out of a feeling of humiliation and disrespect by the west and even if they do not agree with it they understand the motives of the attack.

Even as it will be clear that Bin Laden is behind the attack, it will be difficult to proof that Bin Laden is responsible for the attack as there will be no written order to commit the act. The burden of proof is more difficult because of the structure of the Bin Laden’s organization, Al Qaeda. Al Qaeda is essentially a small organization with many alliances, relations, with many other groups. It is more like a network, a web of groups with the same goals and way of thinking and acting. And all have a cell structure in which only a small number of persons know people of other groups. Al Qaeda is essentially only responsible for intelligence, financing, training and probably some command and communication functions. They are a support group which does not commit any or little operations of their own. The command function is very vague and could probably more look like a consultancy function with some leverage. But one should always remind that the word of a man of the standing of Bin Laden means something and can cause a lot, his words are very important and the majority of the people in his surrounding obey to his words. Not to speak of the support Bin Laden is able to give to other groups. This is all together is very convincing for other groups to follow the leadership of Bin Laden.

The attack on the U.S.A.

Tuesday, the 11^th September 2001, started as every other day in New York city. The day would however change the world. Four aircraft, 2 Boeing 757 and 2 Boeing 767, were hijacked. The hijackers took over control of the airplanes with knives and the threat of a bomb. They took over the pilots seat and changed the direction of the aircraft towards NYC and Washington DC.

Two aircraft with a 15 minutes break rammed the Twin Towers of the World Trade Center, one slammed into the Pentagon and one crashed in the countryside. The passengers in the last plane staged a counter attack and the plane crashed, thereby saving the U.S.A. from another disaster. The likely targets were the White House or the Capitol.

All targets were highly symbolic targets of American prowess. The Twin Towers symbolised the capitalistic free trade system and the Pentagon the all mighty military power of the U.S.A. It represented everything Bin Laden and its followers despised. It was a kind of revenge, we can hurt, humiliate, the U.S. and it will get Bin Laden the admiration and support from many muslims in the world.

The attack however unified the U.S.A. in its demand for retribution, a war against terror. The U.S.A.received the support from all over the world in the fight against terror. Only many countries will have a second thought with their support and expect to receive support in the elimination of their terrorists in their home countries.

Consequences

A terrorist attack like the one on the Twin Towers is because of its many victims, the negative effects on the economy and while it is viewed as a criminal act and not a political act will have serious consequences for the group who did it and anyone who would support such a group. It will demand a hard and if possible fast answer from the U.S.A.

The first reaction of the U.S.A. was to secure the home land by grounding all flights and increasing the security measurements around the country at important buildings and installations. These actions feezed the U.S. economy and public life.

Many other pro security measurements are studied at the moment, like the introduction of ID-cards, more rights for the law enforcements agencies to tap and follow and hold people, more intruding laws into the private life of people and the most obvious, increased security checks at airports, more police at the airports and air-marshals in the planes to counter the chance on an attack. All these measurements are however only delivering a phony-security, it increases the feeling of security but will not increase the security of the people and/or nation. It will on the contrary limit the freedom and liberties of the people, exactly that which needed to be protected from the suppression and terror of the Bin Laden’s of the world.

For example air marshals will give a bigger sense of security but the problem is if the terrorists could get aboard it is already to late. A shoot out aboard high in the sky could puncture the aircraft the consequences of that would be that the plane would most likely crash. Distance control of aircraft is equally dangerous as if the control system would be under control of terrorists it would be come even more dangerous. Tighter security, more laws, would only limit the freedom of the people without any higher chance of capturing terrorists as they operate undercover in small groups mostly doing nothing illegal until the big hit and they are able to get what they want on the black market.

The intelligence and law enforcement agencies are in te mean time busy to build a case against the involvement of Osama Bin Laden in the attack of 11 September 2001. A political offensive rallied the world behind the U.S.A. in the fight against terrorism. Afghanistan which is suspected of supporting Bin Laden has been targeted by political isolation, even long time supporters like Saudi Arabia and the UAE have withdrawn the support and recognition for the Taliban government in Afghanistan. The mass support of a lot of Arabs in the fight against the west did not materialize as all sided with the U.S.A. as the governments decided that would be best. Even if parts of countries with a large number of islamic people thought different, especially the poor without any hope promoted the fight against the west.

The military answer will come later as enough forces have been deployed to the most advantageous points and if the targets are clearly presented. The first target will most likely be found in Afghanistan, or better the Taliban controlled part, as they are protecting Bin Laden. If the Taliban will not accept the U.S. demands, including the hand over of Bin Laden, the end of support to terrorism and the right to control the training camps, something they never be able to do, they will be attacked at some time. The U.S. will not let the Taliban get away with their support to Bin Laden.

The military answer will not include an invasion, an army deployment, in Afghanistan but only precision bombardements of B 2, B 52, F15E, F16C/D and F/A 18C bombers and fighter bombers and ofcourse Tomahawk guided missiles on Taliban institutions and buildings, military infra structure and training camps. And the U.S. will use special forces to raid suspected places and areas. Forces like the Green Barets, Delta Force, Seals, Rangers and probably the British SAS will be involved in those operations.

Places which might be attacked are the airbases; Kabul international, Kandahar, Shindand, Herat, Mazar and Kunduz. The larger ground force bases as Qargah and Rishkor on the outskirts of Kabul and the former 18^th Divivsion base at Deh Dadi outside Mazar. These bases have been used by Arab and foreign combatants but will now be most likely deserted. Smaller bases and frontline positions can also be attacked with the help of the Northern Alliance which is combating the Taliban.

So the only kind of operations in Afghanistan will be a fast in and fast out strategy and hit and run tactics. Creating maximum damage on the enemy without becoming a target itself.

The U.S.A. will not make the same mistake as the Russians did in their Afghanistan adventure. They will not enter with large military forces to try to hold and change the country. They will be invisible and only the results of their actions will be visible.

Fighting Terrorism

This strategy will not deliver immediate tangible results and it will take time before the cell structure can be touched and the first successes can be achieved. The fundamentalistic islamic organizations will be in the mean time be able to strike back against targets in the west.

The U.S. operations in Afghanistan are just a first step in a long process. And it will take more than military and law enforcement operations, or even political co-operation. It will take a policy, economically and socially, to support the islamic countries who have large groups of poor people without any perspectives and/or people living in refugee camps. As long as these bad situations exist people like Bin Laden find a fertile ground for their extremist ideas, get the attention and receive as much support as they want.

The world community can do its part to make terrorrist have a bad time. This will have to do with co-operation and ofcourse limiting the freedom of terrorists in the world. Intelligence should be shared, an active human intelligence network should be set up and law enforcements should co-operate with less bureaucratic hurdles. The co-operation between the intelligence communities will be difficult as they guard their knowledge very carefully. It is their working capital and only an equal exchange of information will work and not a one way street. A one way street should be avoided at any time as this would be regarded as one country would benefit mostly from the co-operation and destroying any chance of combatting terrorism effectively.

The international community should take two other measures as soon as possible. Terrorist organizations should not be able to work out of a country and most importantly the financial structure of terrorist groups should be eliminated. If they can not fund their work they can not operate properly and are more likely to make mistakes. Even as terrorism is a relatively cheap way to fight a war it still requires capital to buy weapons, train the people, commit terrorist acts, propagate the goals and ofcourse pay for the living of the staff and operatives.

The majority of the actions against terrorism can be implemented very quickly, it will only need the will of the governments to do it. It will not need new extended laws limiting the rights and liberties of the people. It also does not need the increased security measures introduced after the Twin Towers atrocity. It will only need the will to execute existing laws, co-operation and better intelligence.

And to finally defeat islamic terrorism of the Bin Laden kind on the medium to long term, you firstly need to support the people without future and in refugee camps in the world. As this is where terrorism will grow fast and easy. Partly the cause but certainly the support base. And secondly, causes like the continuing Middle East conflict between Israel and the Palestinians and the unfair treatment of people in the Middle East need to be ended. This will subsequently limit the involvement of the west in the Middle East and at the same time one of the grievances of the muslim population.

September 2001

September 2001

A note on Warfare

The use of armed forces in the future, Heavy vs Light Forces

Since the end of the cold war, the bi-polar world, the political landscape has changed dramatically. A large number of states in the western world cashed in the socalled peace dividend, lowered the expenditures of defence and decreased the number of forces under arms. There was a widespread believe that conflict and the chance of new conflicts had been over. The opposite proved to be true, new and old suppressed conflicts came alive and demanded the attention of the world community.

The nature of the conflicts had changed, as the world had formerly prepared itself to fight one big conflict between the two ideological blocs, the U.S.A and the U.S.S.R, or a more or less controlled representative war in a rather unimportant country between two ideologically different groups each linked to one of the superpowers. The new conflicts, internal conflicts and conflicts between two or more countries were of a different character and intensity. And above all most of them are little to none controllable.

The developed nations of the world wanted to do something to meet the pressures and dangers from the new actors and nature of the conflicts. The developed nations had to do something new to make up the lapse in capabilities since the demise of the East-West conflict and the speed with which new conflicts developed and which were relatively immune to political or even economical pressure.

New and lighter forces are to be introduced which could be available on a very short time span on every place in the world. Or better nearly every place. Together with these new lighter forces a new doctrine had to be invented when and how to use the light forces.

The return of the Light Brigade

Light forces, e.g. light cavalry and infantry, have existed since many years and were mainly used for reconnaissance, counter attack, surprise and other kind of missions where speed and deployability were the most important conditions. The speed and deployability had of course their price as protection, armour and support and logistics were less important and only rudimentary available.

In the years of the cold war light forces, airborne and infantry units, were of lesser importance and only used in support of the heavy forces which dominated the stand off. War and conflict was seen as a fight between large heavy armored forces rolling over the plains of Western Europe.

After the demise of the Soviet Union, the large armored threat out of the east disappeared making the existence of the large heavy armored formations less important. The conflicts which emerged after the cold war were less intensive and mostly combat between lightly armed forces, often even nothing more than armed para-militaries or guerilla forces against a light and outdated armed government army.

The place of combat was thereby often far from the developed world in less developed areas which are geographically beneficial to the use of light forces, e.g. mountainous, forested and remote areas.

The developed western world needed forces which would be able to react quickly and move fast without long deployment times and the need for host nation support en route or in country. The use of heavy armored forces, which require a relatively long time of deployment and more infra structural support, were therefore more or less excluded. The geographic condition further promoted the use of lesser armored vehicles and/or forces, e.g. light forces.

The need to modernize the forces, the need to react adequately to the new military demands ergo the need for light fighting vehicles and the economic benefits of replacing the heavy armored forces which are expensive to acquire, maintain, operate and deploy with lighter vehicles sounded very attractive to the military and especially to the finance departments.

The light forces returned to the spotlight and nearly all developed countries have some kind of program to re-introduce the light forces as a substantial part of the armed forces. There is not only an increase in airborne forces but also in light infantry or better the above mentioned units which use the light armored vehicles.

The light infantry is fast to deploy over considerable distances as they can be airlifted in large quantities. They are very mobile in their movements as they are fast and agile. They have enough fire power to eliminate the targets they most likely will meet in the expected low to medium intensity warfare. Superior intelligence, information warfare and fire power of lightweight artillery and missiles should further deliver the punch to win in a combat situation.

The main fighting power with the light units are the people fighting in the units. The vehicles are only a support element to bring them form A to B in relative safety and to give some fire support. The kind of operations which are momentarily in high demand, Peace Support Operations, PSO, or Peace Enforcement Operations are very good executable with these kind of forces. Manpower, mobility with enough firepower and stamina are considered the elements to make those operations successful. These are the reason why light forces are that popular again.

Armored vs Light units

The heavy armored forces which dominated the army landscape for several decades have been on the losing side. The heavy units have been cut in modernization, maintenance and operation budget. The air force, navy and even the infantry, airborne and special forces elements in the army received more attention. The heavy forces were considered less worthwhile as their use was in the PSO, peace enforcement operations on the first sight not that important and useful.

This could occur firstly out of the wish the save funds as the defence departments received lesser funds each year as other social and budget/financial problems seemed to be more important and got a bigger part of the cake. Secondly strategic questions like the increased use of the armed forces in PSO operations under the flag of the United Nations draw more attention than the armored forces which only seem to play a minor role in the majority of the PSO operations.

The question here is what is the position of the armored forces in the future. Do they deserve the role which they have been forced upon during the last couple of years? Are armored units representing only a small part of the army mainly to be tasked to defend the country from an attack and in the secondary role of supporting the light forces, infantry and airborne forces, in PSO operations?

The capabilities of armored forces have been greatly underestimated in recent times merely on the fact that they are more expensive and especially because they more difficult and slower to transport over large distances. And of course because they have been used incorrectly in a couple of conflicts. The most clear example of the ill use of armored forces has been the Russian operation to conquer Grosny, Chechnya, in the first Chechnyan uprising. A Russian company of Russian T-80 main battle tanks, MBTs, were destroyed in the attempt to take and hold Grosny. They were eliminated with an ease not only destroying the name of a rather good MBT, the T-80, but also discrediting the use of armored warfare in future conflicts.

Disregarding all historic knowledge of using MBTs in warfare, the MBT has to be accompanied with infantry to secure the area especially in all close in fighting. Even the highly capable and much praised Israeli Defence Force learned this lesson on the hard way in the Yom Kippur war in 1973 when they used MBT only formations without the necessary support of armored infantry and artillery. Previous experiences in the six day war in 1967 delivered that good results with MBT dominated units and the idea that the Middle East was not Europe where infantry and artillery support are absolutely necessary was the reasoning behind the move to have MBT only units. However the introduction of effective Anti Tank missiles and as the fighting closed in the MBT became vulnerable and could be destroyed by the opposite forces. The fighting power and morale of the IDF had been severely undermined by this heavy loss of MBTs and casualties.

In all wars the strength of an army depends on the co-operation of the combined arms team of MBTs, infantry and of course artillery and air support. They are equal partners in the equation. If one is considered less important the chance for success will diminish.

The MBT in the combined arms team has an important role even in urban warfare, the kind of warfare considered unsuitable for MBTs. All depends how to use the MBT, in what position. All parts of the combined arms team should be used flexible, in urban warfare infantry takes the leading role in open warfare the MBT will take the leading role but each is less useful without the other. The strengths of all should be used most beneficially to the team and all have a place. The combined arms team can maximize the possibilities and minimize the vulnerabilities, so increasing the fighting power of the unit and their chance on success.

The MBT is even useful in urban warfare if some rules are respected, and violating these rules could mean the destruction of the MBT. The MBT has to operate in the combined arms team, all movements has to be covered by the accompanying infantry, no spearhead operations, the MBT is to be used in urban warfare as a support and defensive weapon, not as a system to enforce a breakthrough and ofcourse the MBT should not stay to long in one place to attract the attention of the enemy as the MBT remains a great trophy to destroy.

Conclusion

The world has changed since the demise of the Soviet Union and the end of the controllable conflicts of the bi-polar system. New conflicts emerged with other demands on the defence forces. There grew a demand for military units which could be deployed quickly over large distances and could operate without to much support and if possible were not to expensive.

The light units, infantry with wheeled light armored vehicles and airborne units fulfilled this demand. Efforts have been put in place by a large number of developed countries to increase the number of these units in the last couple of years to have a large number of these forces available to be used.

This at the expense of the existing armored units which are considered less usefull and valuable in PSO operations. This trend is likely to continue in the coming years but it could proof to be a to big investment into one kind of system with in the end a big headache as the light forces could not meet all demands. Or better met an opponent which has been to strong. The dominance of the MBT in the cold war period is over but to replace them with light armored vehicles coud therefore be short sighted on the medium to long term.

There is a need for a balanced defence force to encounter all possible eventualities including the defence of the homeland and expedition operations against a stronger opponent then the now encountered light armed units or para-military units which can be controlled by the light forces.

The defence forces of the future should be combined arms teams and they should be integrated at the lowest level possible. For example the brigade should be a combat formation with heavy armored units, armored infantry, light infantry and artillery.

They should train to co-operate on the lowest level to maximize the effects of all systems. If the co-operation between the heavy, light and artillery units is running correctly it can outmaneuver and outfire all existing and future opponents.

Combat operations can only be excuted correctly if all three work together and use their strengths. If only one part is used and others neglected it will just be a matter of time before they will meet an opponent who will destroy the strength of one system and tactic. Remind the Russian experience in Grosny or even better the Israeli one in the Yom Kippur war in 1973.

A comprehensive defence force with the strategy and tactics to use the capabilities of the combined arms team is the only way to avoid tragic incidents as happened if parts were left out. There are no short cuts to success and security. It is an all or nothing game and light only is just to little to make it if the going get’s tough.

August 2001

August 2001

Investing in difficult times – Missile Defence

Investing in difficult times

Introduction

Investments into one or more of the various stock markets of the world has been a rather disappointing and costly way of investing your money. The majority of the stock markets on the world have delivered a bad return on your investments. The markets did not continue to boom as in the previous years but were severely affected by the economical slow down and the depreciation of the stocks. To many bad reports, the slowing down of the U.S. economy and the world wide negative effects on the development of the U.S. stock market were the main reasons for the sell off.

Many sectors and stocks lost a large part of their value, even if they could occasionally show some signs of improvement, and the stocks will continue to do so, the trend will be flat to slightly negative on the short term. The stock market will most likely regain its strength if the economies, especially the U.S. economy and to a lesser extent the European economies, will show some better growth perspectives.

It will probably take another three to six months until the first signs of a rebounding economy wil become visible. Before the first signs become apparent it is now the opportunity to invest in the most promising stocks and to be ready if the market will take off again.

Market Situation

The stock markets are still without a clear direction, a number of companies are giving warnings, the sales, procurement, GDP numbers and the E/P ratio will be lower as in the previous year and some companies are performing better than expected. All these indecisive data do not give a clear direction for the future. To much can be read into the data, the bulls and the bears both claim the possess the right knowledge about what the market will do. But maybe there is to much interpretation of the data.

What is certain is that the economies of the world are growing at a much slower pace. Instead of a 3 to 5 percent growth for the developed countries the growth is limited to 1 to 2 percent.The performance of the companies is equally lower, south of the double digit growth instead of north of the double digit growth with the internet, communications and technology, ICT, sector receiving the biggest hits. The internet companies received the biggest hit with a decrease of over 80 percent in value, the communication companies because of the high debts and lower demand up to 40 percent of their value and the internet focused tech companies with equal high decreases.

The question is how far will this depreciation continue, when do we bottom, when will the stocks inprove again and when does the economy show better growth figures. The U.S. interest rates have become lower and will most probably get lower another 25 to 50 basispoints, the European rates will most likely also see some bigger movement with an approximate 50 to 100 basis points. The European inflation seems to be more under control so giving the ECB space to support the economic development. The effects of the rate cuts will take some time before the first effects will become visible.

An improvement of the economies can therefore be expected to start in the next three to six months. The first bigger improvements will first become visible if the quarter reports will be made public. The last quarter of 2001 or the first quarter of 2002 will see an increasing number of companies delivering better then expected results. The improved business figures will be boosted by the lowered interest rates which will in the first to second quarter of 2002 affect the growth of the economies.

A road for better stocks

The last two quarters of 2001 will be very likely difficult quarters, the market will lack any clear direction, the economies are still in a low growth scenario and to many companies delivering disappointing results. This market situation will be flat, with some up and down reactions on news but in the end no big changes, the Dow Industrials for example will be moving in the 10.200 – 10.600 range, other market indices will continue moving in the same kind of range 10 to 15 percent below their former highs.

This level will however deliver opportunities to get into some markets previously considered to expensive. The ICT is the most prominent example but also the most risky sector. It will take some time until they recover from their very big decrease in value but the ones which survive will be in two to three years back in the front line of the best performing stocks. It is therefore very profitable to invest into the most promising ICT stocks if you have some time to let them develop.

In the meantime it is safe and profitable to put your cards on the blue chips of the market. They will most likely not give in to much to the occasional bad news reactions and still should be able to deliver a little growth.

Which and where to invest

This period of indecisiveness and low stock prices is a very good opportunity to make some additional purchases. The market will remain depressed for some time but on the medium term, read 9 to 12 months many stocks will surge in value.

The sectors first to benefit from the improvement are the pharmaceutical, biotech, HMO, oil/energy, financial/insurance, automotive, food and beverage, retail sectors. The ICT sector, including the computer, processor and software and service companies, will follow the lead of the old blue chip companies. They will take some time to recover but if they recover it will be stronger and financial healthier. The better ICT companies will survive the carnage. These are the companies with a strong brand name, a number of proven and new products available, enough financial resources and even some profits achieved in the last couple of quarters. Investing in the ICT sector will need a longer time horizon as they will only be able to start their growth in 12 to 18 months. (For a full list of stocks of which we expect higher growth look at our May 2001 report Financial Assessment.)

Missile Defence

Introduction

The idea of missile defence is not a new option. It exists since the first missiles were developed and both, the U.S. had temporarily a missile defence system operational, and Russia has since many years a Missile Defence system operational around Moscow.

The idea of missile defence and the possible elimination of nuclear missiles exists since many years. Especially after it was seriously put on the agenda and put in development by U.S. president Ronald Reagan.

The socalled Star Wars programma, SDI, Strategic Defence Initiative, was aimed at the defence of the U.S.A. from every possible missile attack. The programme proved to be to difficult to implement with the current technological capabilities and has been continued in the mean time with lesser ambitions and without a pressing time scale.

The idea of missile defence was reactived/rejuvenated with the election of George Walker Bush as the new president of the U.S. Before Bush the missile defence program was more or less every year continued at the pressure of the U.S. Congress. The new missile defence system should not defend the world against a full scale missile attack as envisioned during the Cold War but as a defence against a limited strike of around 10 to 15 missiles. The rogue states, or the states of concern, were the main objective of the rejuvenated missile defence plan. Countries like North Korea, Iran, Libya and Syria were the ones at which the missile defence system was primairily aimed.

Options for missile defence

The SDI program evolved into the Ballistic Missile Defence Organisation, BMDO, with a less ambitious defence plan and with lesser but still considerable funding available. The BMDO was to be responsible for the development of a defence system for the country and forces deployed abroad against ballistic missile attack. The program was to be called initially the National Missile Defence system which should be able to defeat a small number of ballistic missiles, up to 15, fired by states of concern. The main goal was to protect the U.S.A. from black mail attempts from states of concern, at least this was the official description of it.

The NMD programme increased somewhat in scale as two sites were to become operational instead of one. The NMD program became more advanced as after the first territorial differences between a land based and naval based defence system, both were to be included in the NMD system. The NMD was to be organised into the Ground Based Midcourse system and the Navy Theater Wide system.

The Ground Based system is particularly developed for the protection of the U.S.A. and eventually its allies. The Navy Theater Wide system was designed to protect U.S. forces abroad and eventually allies under threat. As the navy system is based aboard of ships it is easy to relocate.

Even after that many years of research and development the BMDO has not yet one system available which could be fielded, with the exception of the Patriot PAC III but this has been operable over a decade and updated every couple of years. The PAC III version should be able to defeat an entering warhead/missile with a hit to kill shot. Another program close to be introduced is the Naval area anti ballistic missile system, the Standard SM 2 IVA missile with small modifications in the Aegis radar/FCS system.

All other programs are still in the development stage but they could be fielded within the next five to ten years if appropriate funding is available.

Ballistic missiles can be tracked and intercepted at three stages. In the boost phase, in the mid course phase and in the terminal phase. The boost phase is the easiest and safest phase as the missile will fall back on the launching territory.. The missile is in the boost phase easy to identify, relatively slow so better to intercept and still in one big part, so easier to hit. The mid course phase is the time of flight in space or in high atmosphere.. The speed has increased and the radar and/or infra red signature gets smaller. At this phase the missile is best attacked with space based weapons.

The terminal phase is when the missile/warheads re-enter the atmosphere and are moving towards their targets. The missile/warhead is at this stage very fast and only a hit to kill will eliminate the missile/warhead.

Most programmes of the NMD are aimed at the terminal phase and boost phase as it are the easiest, smallest and cheapest parts to realise.

The missile attack is to be identified by satallite, the now to be built Space Based Infra-Red Satallite, SBIRS, is the main radar to identify and track the missiles. This in support of some land based radars like the one in Alaska.

After the missile is identified and tracked it can be attacked. The main means to attack the ballistic missiles are the above mentioned Patriot PAC III and Standard SM2 IVA missiles which destroy the missile in the terminal phase.

Secondly, the missiles in development, the Theater High Altitude Area Defence System, THAAD, and the Standard SM3, Theater Wide defence system. Both missiles are targeting the ballistic missile at higher altitudes in the terminal phase and are capable to hit a missile in its boost phase, just before entering the mid course phase. Especially the SM3 is designed also to destroy a missile in this phase. The SM3 as a ship based missile can be placed on the coast of a country which intends to launch ballistic missiles.

The Patriot, THAAD and the SM2 IVA and SM3 missiles are either operational or close to be operational. They are very good fit to be used in a limited anti ballistic missile defence system as intended by the NMD plan.

The NMD programme also covers some more exotic weapons like the Airborne Laser System, ABL, which should be able to destroy ballistic missiles in their boost phase. The ABL is supposed to be demonstrated in 2003. Other laser systems are also under development which should destroy missiles in their terminal phase. And finally there are some plans to re-launch some kind of Brilliant Pebbles system. Brilliant Pebbles was a space based system which was aimed at destroying missiles in their mid course phase. It was a space based system, a kind of garage for missiles, ready to be launched at missiles entering and moving through space.

If the NMD system is to be deployed with the above mentioned missiles, the ABL, other laser systems and some kind of Brilliant Pebbles, NMD will become more than a limited defence against 10-15 ballistic missiles. It will be closer to a system for defeating a limited strike, e.g. over 100 missiles, And this is what Russia and China worry most about. If some kind of system is fielded it is relatively easy to make it bigger and make the Chinese and Russian missile inventories rather useless.

Thoughts about missile defence

The NMD missile defence system has some logic. It could protect the U.S.A. and its allies from missile attacks from the socalled states of concern. And ofcourse an incidental launched missile. It is better to have a defence system making the possession and development of ballistic missiles and Weapons of Mass Destruction useless. It would somewhat make the policy of Mutual Assured Destruction, MAD, irrelevant. The MAD policy may have worked well in the cold war but is something stupid if defences against attack/destruction are available.

A limited NMD system is technically feasible, a larger defence system with lasers and space based systems might be still be a bridge to far on the short to medium term, but certainly not impossible.

The NMD system will violate the ABM treaty but taking in mind the development and spread of ballistic missiles with WMD capabilities it should be questioned if the ABM treaty between the U.S.A. and Russia has outlived its usefullnes. The situation in the world has changed dramatically making to use of ballistic missile defence systems something very beneficial to the safety and security of the world.

The ABM treaty in itself is thereby not only under pressure by the U.S.A. with the development of THAAD, SM3 and the ABL but the Russians themselve possess and have developed anti ballistic missile systems with the operational Gazelle system around Moscow, the operational S-300 air defence system with ABM capabilities and with the development of the new S 400 missiles which boast even further improved ABM capabilities.

NMD is a positive development for the security in the world, it is there and can not be stopped by political pressure from Russia, China or even some of the allies of the U.S.A. It is more important to co-operate to develop and introduce a good NMD system with the best capabilities available, making the use of or threat with ballistic missiles impossible.

July 2001

July 2001

A note on Stealth

Introduction

Stealth has been a very popular and much used word in recent times. New equipment has to be designed and built with stealth in it and in every conflict were western powers are involved, the use of stealth is something as a necessity, a God’s gift, a guarantee that you will win the conflict.

Stealth is often used with the name Low Obeservable’s, LO, which as the name says are the technologies used to minimise the chances to be located and identified. The stealth/LO technology is around us for many years and promises to be very effective if used correctly. The most known fact about stealth is that it decreases the Radar Cross Section, RCS, of a vehicle. The newest products have in the mean time achieved RCS factors which equal birds and insects. Were only the strongest of radars or innovative used radar systems or the use of a total different systems are able to identify Stealth vehicles.

Stealth is the ability to make radar detection very difficult if not impossible, the stealth vehicle is to absorb radarwaves, through Radar Absobent Materials, RAM, or by Radar Absorbent Structures, RAS, or to redirect the radarwaves, through the particular construction of the product to avoid detection. Stealth is however not limited to radar but also covers the limitation or even elimination of infra red, radio frequency and electronic emissions. In short the total emission management of a vehicle.

The effectiviness of stealth is only assured if combined with proper intelligence,

systems which can locate radars and identify them to evade them, surprise and ofcourse supporting aircraft like AWACS, EW and eventually fighter aircraft.

Stealth is a long known ability which has been known since many years.

The use of stealth will and has brought many advantages to the user, higher survivability of the crew and vehicle, higher chances on success and a bigger impact on the enemy, which is being attacked without knowing it in advance where and how.

The fundamentals of stealth were developed by the equations of the 19^th century physicist James Clarke Maxwell. Radar development and stealth are based on the computations of Maxwell on the absorption and reflection properties of electro-magnetic waves Many educated nations knew and know about stealth and research has been abundant on the subject. Not only the U.S.A. is busy with stealth also a number of European countries are committed to stealth. The U.S. advantage with stealth is about the integration and operation of complete stealth vehicles, and especially stealth aircraft. Europe’s stealth capabilities are at the moment more limited to ships, missiles and parts.

The use of stealth

Stealth can be used in aircraft, ships, vehicles, remotely piloted vehicles / unmanned aerial vehicles and missiles. The use of stealth in aircraft is widely known after the U.S.A. made their F 117 strike aircraft and later the B 2 bomber public. These aircraft, and especially their abilities to penetrate without being seen, played to fantasy of the people as if it was a plane from outer space.

But before the introduction the F 117 and B 2 research on stealth was already done by many countries in the western world. Research on stealth technology started already in world war II.

The research on stealth in the U.K. was closely connected with the research done in the U.S.A., In Germany they have executed and are executing stealth programs. They have proceeded very far with even a large scale model of a stealth aircraft called the Lampyridae, Firefly, which was designed to operate over the SAM and radar infested areas over the inner German border. This project was halted after massive U.S, pressure on the German government. France also has its stealth projects which was highlighted by the introduction of the Storm Shadow / SCALP EG air to surface missile, which is one of the first missiles boasting stealth capabilities. And by the La Fayette frigates which was the first frigate which was designed and constructed with stealth as the main design factor.

The La Fayette design was soon to be followed with the Dutch LCF frigate, the German F 124, A 100 and A 200 designs and by the U.S. planned DD 21 destroyer.

Land systems were also being designed with stealth on their mind. New Armoured Fighting Vehicles, AFV, were built to minimise the Infra Red emissions, the detectability by ground radars and ofcourse the visual appearance. Examples of these are the Leclerq main battle tank and the MRAV which is under development at the moment.

Further work has been done on RPV’s and UAV’s which incorporated stealth technology to increase their mission succes.

In all new designs stealth plays a major role but the implementation of stealth in aircraft is the most commonly known and the most eye catching.

The above mentioned F 117 and B 2 aircraft were the first which were designed completely with stealth as the most influential factor. Before those two planes other planes like the SR 71 and the U 2 recconaissance aircraft also used elements of stealth to increase their chances to survive on a mission over enemy territory.

The F 117 and the B 2 were designed to be very difficult to detect or even to be invisible to enemy radars. This was however not completely reached as, especially the F 117, they need careful intelligence about the whereabouts of enemy SAM systems, EW aircraft to accompany the ingress and egress routes and surprise to use their advantages and reach a high success rate. If one of these elements are missing the success rate gets lower very quickly.

The stealth factor was continued in the design of the F 22 Raptor air defence fighter and the planned Joint Strike Fighter. The F 22 and JSF combination should be the continuation of the F 15 and F 16 game. The F 22 is providing air defence, air dominance, and the JSF is the bomb truck. The JSF was therefore designed with as little as possible electronic equipment installed. This to keep the price low and to built a to the job aircraft.

The JSF programme is under threat by the new government as they might eventually skip a generation of aircraft and go directly to the Unmanned Combat Aircraft and/or built a F 22 in a strike version. There have been talks to built beside the 339 air defence F 22’s, 423 air to surface optimised F 22’s. This combination would be a very powerful instrument in the hands of the USAF, and would make the JSF superfluous. Existing F 16 block 50 or 60 and F18 E/F’s could easily make up the gap left, if the JSF will not be produced, until the Unmanned Combat Air Vehicles were to be introduced.

As things stands today the F 22 and the JSF are a new generation of aircraft which promise to deliver new opportunities in fighting and winning the next war. Higher strike rates, higher accuracy and lower fatalities on the own side.

The European aircraft programmes, the Eurofighter Typhoon and the Dassault Rafale, have also been designed with stealth on their minds. Not as rigorously as with the F 22 but on some aspects of the aircraft. Especially the front side is said to very small on radar screens.

Stealth has become an inseparable part in the design of new vehicles, equipment and ammunition. Existing vehicles and equipment is updated whenever it is possible and stealth assets are, were possible, included.

The limits of Stealth

Stealth is however not a magic instrument which can overcome all enemy defences. The defences not even need to be the most modern to be able to limit the effectiveness of stealth. And history has made this clear.

As have been made clear the use of stealth is, if it is succesful, will need something more than just a plane build according the highest stealth specifications. The plane itself will need advanced electronic systems to identify the radar systems and map a flight route through a radar field, it will need pre-strike intelligence about the whereabouts of radars and SAM systems, it will need to know about the capabilities and the signature of the radar systems, it will need surprise and it will need cover from AWACS type of aircraft, air defence suppression from SEAD aircraft and EW aircraft and eventually cover from air defence fighters. A succesful air strike with stealth aircraft is therefore more complicated and demanding as envisioned at the first look.

If one of the above mentioned elements is missing the succes of a stealth air attack will be much less certain. The level of succes will even reach the levels of an attack with coventional aircraft.

The undetectability/invisibility of stealth aircraft is much more limited as first presumed. Firstly the aircraft can only be used at night as the visual detectability is just as great as of conventional aircraft.. Secondly, the stealth aircraft have to carefully manage the emission of all possible sources, radio frequency, infra red and ofcourse radar. Stealth aircraft are just as vulnerable as non-stealth planes as systems like the Czech Tamara system will locate them just as easily, Tamara scans for emissions from the aircraft and then locates and identifies the source.

Thirdly, beside the mark one eyeball identification, a real time system of radars connected to one control side could also identify a stealth plane. This is at the moment not possible, at least not with current in service equipment.

Fourthly, the unconventional use of radars and the socalled radical radars. Radars can be shifted to a different spectrum were LO technology is not just as effective. And some LO materials are not very effective against low frequency radars as used in the older Soviet made UHF radars. And ofcourse new developments in radar technology will make the radar more capable and able to locate stealth aircraft.

A new kind of radar, the radical radar could also locate stealth aircraft. The use of Ultra Wide Band or bi-static radars could also identify stealth planes. There are still some problems with the new radars like the UWB radar require very high power to achieve long range detection and shaping techniques render them much less efficient than narrow band radars. With the bi-static system, the emitter and receivers are separated and need to be pointed at the the target in order for detection to take place. Searching a large volume in this way is difficult and would require a complex system of multiple platforms which is beyond the ability of many states. Both systems are therefore not available or operational yet. But future improvements may make the system more effective and operational.

Fifthly, another way to detect stealth aircraft is by detecting and tracking the inevitable disturbance all aircraft, stealthy or not, produce in their immediate environment. The most favored method is to exploit the disruption of commercial radiation transmissions blanketing the earth. These passive detection systems detect disturbances of FM radio, television and mobile phone waves/signals. This is a relatively cheap system as all transmitters are delivered with no cost an donly recevers have to be put in place.

And at last, stealth aircraft like the F 117 and the B 2 are not very good aircraft once detected and air defence fighters are sent to them. They are not designed for air to air combat or even to much self defence. These aspects would severely limit the chances on survival for the stealth aircraft.

A note on the side, the JSF is developed as a stealthy bomb truck, largely to keep cost under control, and only after massive pressure from the services and foreign potential customers it is included with some more electronics. The JSF was except from its stealth at the level of an F 16 A//B, where as the updated JSF will only reach the level of a F16 C block 50 aircraft. If the JSF would meet an updated F 5 or MiG 21 with a helmet mounted sight and advanced missiles it would have a very hard time to survive..

The weakness of stealth became visible as the Serbian/Yugoslav armed forces downed one F 117 and at least damaged one other. This was possible because of inadequate intelligence, the loss of surprise by using the same routes several times and the better placement of air defence systems / radars in anticipation of a coming raid.. The stories about a leak in western European defence circles about the strike routes of the U.S. stealth aircraft is nothing more than an attempt to save face. Or better to save the implacable reputation of stealth aircraft as superior invincible aircraft.

Conclusion

To put stealth in the right perspective, stealth offers a new capability which is very useful but it has to be used correctly and should not be overestimated. It is not a magic instrument which can overcome all defences. It has its weaknesses and new systems will certainly be able to detect stealth aircraft. It is like the competition between the anti-tank missile and the armour of a tank. There always will be a counter reaction to eliminate the advantage of the other. And the race with stealth and counter stealth is just to begin.

Not withstanding the counter stealth offensive which is about to be unleashed, the F 22, the B 2, the Typhoon and the Rafale remain very good aircraft which have a right to exist. They will improve the capabilities of the air forces using them.

The stealth factor is necessary to improve the survival of the aircraft and the success of the mission. The level of stealth is open to debate and depends on the specific role of the aircraft and the price the user is willing to pay. But to much stealth and especially to much reliance on it could proof to be very dangerous and costly. Cost in the procurement of the stealth aircraft and the risk of losing the aircraft as it ignores the dangers against it. Or better the limits of stealth.

June 2001

June 2001

A note on the Fundamentals and Principels of Business Strategy

Introduction

Strategy, a much used word in the world, politicians, government officials, the military and business people use it and often abuse it. The usage of the word strategy should give their statements an additional impact and make it look more serious.

Strategy is an important element in life and could deliver a better return on investments or policy for that matter only it is used all to often incorrectly. At least to our understanding of strategy.

Strategy is an element of a hierarchical system which can make the creation and the execution of decisions better, easier and more logical. The role of strategy is a really important one as it is the first or highest one which includes the first steps to the execution. And everything has in the end to be measured against the efficacy. A brilliant strategy without a proper excution is as valuable to a company as a car without an engine. It might look good but not really helpful in going from A tot B.

We will try to bring some understanding into the idea of strategy. We will describe strategy, place it in a system and give some principels how to use and execute it.

Strategy

The definition of strategy is that it is the calculation of relationships among means, end and will or as the management, allocation, of resources, in anticipation on developments, towards a goal. The strategy is therefore mostly dictated by the availability of means than by the nature of the ends. Strategy is about what and when to do what in general terms to reach your objectives or what has to be achieved.

The strategy level is the first, highest, level which has to turn an idea into a feasible plan. Strategy is at the cross roads between, in the case of a company, the owners, read share holders, and the actual management of the company.

Strategy is responsible for the masterplan, the direction in which the entity has to work. It should give a layout of the main direction, clear, understandable and acceptable to all parties. This would make the execution of the strategy very much likely and the most important succesful.

The exact policy/execution, who is doing what, when and how, is something to be worked out at lower levels. The close involvement of the lower levels is therefore necessary to promote the proper execution. The lower levels are in the end effect responsible for the execution and they know what is possible.

All levels in the entity should to achieve this communicate with eachother regularly and without the impediment of hierarchical barriers. The hierarchical system is just a formal system and should not limit the flow of information. Without proper communcation between all levels, independent islands could be created who will start to work according their own ideas without taking care of the big picture. As long as their little thing will look good and works correctly everything will be allright. But in this system the achievements and quality will deteriorate rather quickly as the responsibility will automatically be inflated. As if there is none accountability and method to measure the achievements everything which is reached will be looking good.

A proper strategy connected with a management system should guide the whole process and make it succesful. But it should be remembered that a good strategy alone is not enough as strategy as such is equal to al other levels as it is dependent on their functioning to be succesful or not.

The System of Strategy

Strategy is only one part in a kind of hierarchical system which forms the entity or in this situation the company. The company has several levels and each part is responsible for one part of the operation or company.

The highest level are the owners of the company, the shareholders. The shareholders approve or disapprove the vision of the company and ofcourse the achievements of the company.

Just below that is the Board, in which the board members create and explain what the company is doing and what has to be achieved. They decide about what could be called the grand strategy. They design the vision of the company or what the company should be like. They translate the company achievements into the numbers. And finally they represent the owners of the company.

Just below the board are the CEO, CFO, COO and the CIO. At this level the company is managed on a daily basis, they are the ones responsible for the strategy which strategy is to be chosen and implemented. They create the main direction of the company and explain it to the next level.

The next level are the business units, if a company has several main products. On the next level are the divisions, these are the factories or offices of a company around the world. The next level are the departments, these are for example the sales, marketing and production departments of the factories or offices. And finally the lowest level are the people who do the actual work. The last four levels do the actual job and give an implementation of what actually has to be done.

The comunication between all levels has to be structured and has to be rather intensive to assure that the understanding is correct and that all have a strong commitment towards the company. A kind of responsebility has to be created towards the central management so that all parts are forced to pay attention to the company as a whole and not only to the interests of their own division. It should be avoided that one of the parts of the company start view themselve as an island.

Principels of Strategy

The management has to consider the following 6 principels in the creation and execution of strategy. These 6 points will deliver a guide to make the chosen strategy more succesful. The 6 principels for the creation of strategy are:

The right goal has to be chosen, it should always deliver superior long term return on investments.

It should deliver a value proposition or set of benefits, which should be different for what the competitors have to offer.

The strategy should be reflected in a distinctive value chain, to establish a sustainable competitive advantage. The activities should be different or have to be executed in a different way.

The strategy should include trade offs in the product and value chain. In other words some products, services and/or features should be abandoned or foregone in order to be unique.

The strategy should define in general terms how all elements of what company, business unit or division does fit together, A synergy has to be created and promoted in the company as a whole. All effects and side effects should be maximalised and used to the benefit of the company.

And finally the strategy has to assure a continuity of the direction, a good strategy is a long term plan which should not be changed every couple of years. This would only be a sign of weakness in the creation of the strategy and the execution would be consequently equally worse.

Conclusion

Strategy is in short the management, allocation, of resources, in anticipation of developments, towards an objective. Strategy is a delicate process which can be very beneficial to the development of a company. It will deliver a direction in which the company has to go.

A good strategy will be beneficially, internally and externally. Internally it will focus the company the reach the common objective with all levels, people, behind it. The chosen strategy is a translation how to reach the goals/vision set out by the management, board and indirectly the shareholders.

And externally it will make it easier to attract foreign capital And most importantly it will create the image of a strong company which knows what it is doing. Which will become visible at last if the quarterly results have to be made public.

May 2001

May 2001

A Financial Reassesment

Sell in May and go away

An old saying in the stock market is sell in May and go away, this indicated that the summer months historically did not deliver high returns on the stocks. The period from September/October until May were historically the best months to get a nice return on your investments. Is it still valid, should we consider to sell our portfolio and return after the summer break. The last couple of years did not support the old saying, on the contrary the summer delivered a nice return. The bull market and the holiday investors did give a boost to the market.

The year 2001 has not been a good year for the stock markets. The slow down of the economy and some lesser than expected numbers, profits, revenue and growth, of a number of companies made the market fall. Especially the Nasdaq and other technology heavy indexes experienced a near free fall in value. Companies have lost over 50 % in value compared to the unnatural prices of 2000 and before. The commuication and technology and especially the dot com companies, in short the ICT sector, had become very expensive in a very short time span. The ratios of those companies were staggering 80 to 120 times to even zero as profits were not yet realised but everybody wanted to be in. The demand was enormous and the price moved up accordingly. A bubble was created and what seemed necessary the bubble bursted as expectations could not be met and the economy started to grow slower.

The first quarter of 2001 saw a big sell off in ICT stocks and even other big and small cap stocks were hit by the sell off.

What will the year deliver to the stock market, as with stocks there is no certainty, and everything might be possible. But we could eventually make a forecast over investing in the stock market.

The economy

The value of the stock market is essentially a reflection of the expected development of the economy in general and the businesses operating in it specifically. The value of the companies is based on the future expectations of a company of what they are most likely to return on the investments, in short the sales, revenues and profits generated by the companies.

After several years of growth, the US economy and several other western economies have achieved growth rates of 3 % to 5 % annually for a couple of years in a row. Even the Asian economies could recover somewhat after the Asian financial and economic crisis of 1997. This growth translated into very positive balance sheets of the majority of the companies in the world, especially in the US and Europe. The ICT boom did its part to the growth.

The economic slow down in the US did lead to a negative trend throughout the world. Economic growth figures had to be adjusted downwards and instead of the nice 3% to 5 % growth, growth will be limited to a meager 2% to 3 % growth annually. The companies in turn could deliver growth rates of 15 % to 20+ % annually, and now they will only be able to deliver a growth of 5% to 10% annually. The spoiled investors have become somewhat dissatisfied with those limited growth figures. The earnings warnings of a number of bigcap and especially the ICT sector created a feeling of dissatisfaction in the stock trading community.

The insecurity in the stock trading community did become more pervasive by the big interest rate cut of the US Federal Reserve this led to speculations that the US economy was in a much worser state then anticipated. But the cut led to a rally on the stock markets of the world as it did give a positive signal.

The quarter results of the big caps were on the other hand better then expected or in line with expectations only a minority did not meet the expectations.

The US and the European economies are not growing that fast as in the previous period, there is a slow down. But it is still uncertain of the level of slower growth. This uncertainty of the economic growth is suppressing the growth of the stock market.

The slow down will most likely be smaller and shorter than anticipated, we expect a turnaround in the stock market in about 6 months. The economies of especially Europe will also show a good improvement in about 9 to 12 months. The US economy will return to a stable growth of 3-3,5% within 12 to 18 months. There is still a lot of potential in the western world which will be used on the medium term. The US economy may show some better figures than expected as the consumer demand might pick up. The durable goods orders and the homesales proved to be much better than expected.

Europe might have a slight advantage over the US as they have been lesser touched by the fall of the ICT stocks and have not experienced the boom which happened in the US in the nineties. There is still a large demand in Europe which will need to be satisfied. Thus an opportunity for growth in Europe, especially if the US slow down is lesser and shorter as first has been anticipated.

Asia and the emerging markets are of no big help for the stock markets or the US or European economies. They have still problems of their own and are highly dependqent on the growth of their economies on the well being of the western world.

The stock markets

In this assessment we will limit ourselve to the US and European stock markets as they are the most important and essentially the most secure to invest and have the best chance to deliver the best returns.

The stock markets are because of the slower growth of the economy very volatile and without any clear direction. The US slowdown even as it was expected hitted the market harder then was anticipated. The market expected a gradual slow down but when the first signs were worser than they anticipated they sold off large parts of their investments. Even if the signs were largely incorrect with the exception of some ICT stocks. These bad stocks took the whole market with them in their fall.

The market is thereby a victim of the wide difference in the expectations of the majority of the analysts on many companies. This does not give the market any direction, or the companies are performing good to very good or they are listed as bad performers and a candidate for the sell list. The largest disadvantage is that the companies are not belonging to one or two sectors but all kind of sectors and all kind of scales are involved. Small ICT start ups are in the same group as multinational multi-billion corporations. The ICT companies take the lead but as all sectors are present are in the group there is no direction, what so kind, in which sector to invest or to avoid.

The US interest cut of the Federal Reserve, Fed, should have been a support to the market, as it did in the beginning. But the analysts started to doubt the decision as they now suspected that the US economy was in a much worser shape than was anticipated by them.

The availability of cheaper money should support the market as it will probably do but on the short term it increased the insecurity in the market. The suspicious minds of the analysts might suppress the market with their doubts.

These three conditions made the market go up and down without any clear direction. This will continue for some time as the market will have to find itself and the strength to come back from the negative information. The market needs to bottom and need to find the strength to bounce back and show growth for some consecutive days or even weeks before the trust in the market will return.

The strenght of the markets is further undermined by the increased poitical tensions in the world. The relations between China and the US have deteriorated by the spy plane incident and the planned weapon deliveries to Taiwan. The Middle East has also become less reliable for the US and the world in general. The tensions between Israel en its neighbors and especially the Palestinian people have increased. Peace, stability and economic progress seem farther away than before in the Middle East.

These tensions and several other smaller and bigger and close by and remote conflicts have a bad influence on the strength of the stock markets in the world.

A volatile stock market will be around for some time. It will take at least a quarter to a half year before the market will find some direction. And up to six to nine months before the market can gain a positive direction upwards. The exception, as always, are the unexpected good consumer numbers which could create a summer rally. And amking the transition towards a positive direction faster and smoother.

In the mean time the stock markets will show a relatively sharp upward and downward movements with in the end possibly remaining flat. But the market will not have a big decline in value. The markets will have a more side way direction because of the lack of direction, indecisiveness, and the suspicious minds..

This year is therefore partly an example of sell in May and go away. The market will most likely not show any big growth this summer, with the exception of the above mentioned summer rally, but on the other hand it will present some opportunities to buy stocks at a very cheap price. This summer will most likely see the bottom of the prices of stock. An opportunity of one’s in lifetime.

Investment strategy

The best course for the future will be to hold on to the majority of the existing portfolio and prepare to enter the market on the low. This period will deliver an unique opportunity to buy some stocks at very competitive prices. There are still a large number of technology, ICT, stocks which hold much for the future. And there are a numer of other companies which were simply pulled down with the ICT sell off and are also at available at very attractive prices.

The market will not grow as quick as in the previous years but within a time frame of one to two years the ICT sector will belong again to the most promising stocks of the market. And long before that time the other stocks will have made good much of the losses incurred in the prevous months.

The division of a model portfolio, always dependent on your time horizon and your acceptance of risk, for a long time stock investor should consist out 75% stocks, 10% bonds and 10% property and 5% cash. The stock allocation should for example be balanced between the European and US stock markets with a bit more attention to the European markets. A small percentage should be allocated to the Asian tiger markets and the emerging markets. We could envisage the following allocation 35% in the European markets, 30% in the US market, 5% in the Asian tiger markets and another 5% in the emerging markets.

This stock allocation will benefit from the increases of the western markets after the recent decline and at the same time position yourself for the promising developments of the much talked about Asian century.

There are two ways to invest your money, the easiest way is to invest in mutual funds with a region or sector allocation. This is a safe way to invest without having the need to follow the markets every day. It is also possible with smaller amounts of money to enjoy the advantages of a wide spread portfolio.

Secondly, is to invest into stocks directly, which will need a better understanding of the market and a larger amount of money to make it feasible and worthwhile.

The US portfolio

The US stock market offers numerous opportunities, even as the market analysts are suspicious and does therefore not look that promising on the short term. Especially the ICT sector will face a rather difficult year. On the medium term the US economy will stabilise and the slow down will most probably will be a soft landing. The markets will react positively on this and the prospects for the future look good.

We continue to expect a good performance from the oil and energy sector. We like companies like Exxon, Royal Dutch/Shell, British Petroleum but also the oil service/offshore companies like Schlumberger, Halliburton, Baker/Hughes and Diamond Offshore.

The pharmaceutical sector also will remain an above average player, we like in this sector Pfizer, Merck, Johnson&Johnson, Bristol-Myers-Squib and Schering Plough. Beside the pharmaceuticals we like the HMO sector as they will get better returns every year. Here we like Caremark, Community Health, Health Management, Trigon Healthcare, Omnicare, United Health Group and Universal Health Services.

The closely related Biotechnology sector will make a return to the better performing stocks. Here we like companies like, Biogen, Biomet, Curagen and InvitroGen.

The financial/insurance sector will remain one of the better performers on the stock market. Companies like Citigroup, American Express, J.P. Morgan, State Street, AIG, Providian Financial, American General, Fleet/Boston financial, Freddie Mac, Fannie Mae and Allstate will most probably belong to the winners in this sector. But also large trading houses like Merril Lynch and Goldman Sachs will do allright.

The defense sector is finally coming out of the problems from the restructuring and the lower expenditures. The large companies with big stakes in the digitization and advanced technologies will deliver the best performance. Companies like Boeing, Lockeed, Northrop Grumman and General Dynamics will do very well.

Other companies we like are General Electric. Ford and Ballard Power Systems.

In the more defensive kind of companies we like the food and beverage sector with Heinz, Sara Lee and Pepsico, in the utlities sector we like Colonial Gas, Duke energy, AES and Eastern Utilities. But also consumer companies like Procter and Gamble and Gilette. And finally companies like Safeway and Walmart.

The ICT sector is another ball game were the first group promise a better performance within 6 months, the ICT sector will need 9 to 18 months to recover from the slump in sales, revenues and profits. On the long term ICT is one of the most promising sectors as the product package on offer and in the pipiline is very promising.

The following companies are likely to recover from the current situation and regain the strength they used to have. We like companies like Dell, Sun, Palm, HP, Texas Instruments, Intel, AMD, Applied Materials, Xilink, Microsoft, Oracle, Peoplesoft, Adobe, Red Hat, Linux VA, Cisco Systems, CSC, CA, Wind River Systems, Juniper, Sycamore, IBM, Ebay and Amazon.

In the telecomunication sector we like companies like Nokia, Qwest, BellAtlantic, Vodafone and SBC.

The European portfolio

The European market is much more fragmented than the US market. Every country has its own exchange and even wit the increased cooperation between the exchanges it is much more difficult to trade on all.

The economy and stock markets of Europe have not been through the same kind of booming period. The European bourses were thus also less hit by the sell off of the last months. But to be fair the economies of the European countries were also less succesfull. This will probably change on the short to medium term. The European economies should be able to increase their growth to a stable and enduring 3% a year,

In the financial sector we like BBV Argentaria, Deutsche Bank, Commerz Bank, Society Generale, BNP, Fortis, ABN-AMRO, ING, Royal Bank of Scotland, HSBC, Lloyds TSB, Banca Intesa, Banca di Roma and Mediobanca.

In the insurance group we like Allianz, Muencher Ruck, Zurich Group, Generali Ass. and Prudential.

The oil/energy group will also continue to perform very well, here we like companies like Royal Dutch/Shell, BP Amoco, Enterpise oil, TotalFina/Elf, and E.on.

The ICT sector also has some companies which could deliver some nice returns on the medium to long term. Here we like companies like Alcatel, Cap Gemini, Siemens, Infineon, SAP, Nokia, Logica, Sage and Invensys.

In the communication sector we like British Telecom, France Telecom, Deutsche Telekom, KPN/Qwest and Tiscali.

The pharmaceutical sector remains a growth sector with companies like Bayer, Roche, Astra-Zeneca and Glaxo-SmithKline.

In the defensive sector we like the food and beverage sector, with companies like Nestle, Numico, Danone, Diageo, Cadbury Schweppes and Unilever.

In the automotive industrial sector we like Daimler-Chrysler, BMW, Buderus, MAN, Mannesman, Peugeot, ABB, Sulzer and Rolls Royce.

And finally companies like Sanofi-Synthelabo and LMVH and Vivendi.

April 2001

April 2001

Emerging flashpoints Q1 2001

Conflicts anno 2001

The world is still ridden with several conflicts, conflicts which continue since a number of years. Or conflicts which seemed to have diminished but flared up again. The world has not become any more secure since the end of the super power stand off. On the contrary the world has become less stable and prone to new and enduring conflicts which are out of control. International diplomatic pressure can not end or even mediate in these conflicts. Any mediation is all to often simply used to improve the situation of all parties involved. It is a tactical decision to join any mediation or negotiations and not a decision to end the conflict.

Nearly all continents on the earth are victim to one or more conflicts. And the poorer the area the more likely a conflict will be present or about to start. Conflicts are not about politics anymore, they are about power, money, ethniticity and/or religion. This makes the majority of the conflicts even more brutal and long lasting.

To name a number of conflicts, on the Indian sub-continent, the fight between the Tamil minority, the LTTE, and the government in Sri Lanka. The fight between the Kasmiri independence movements against the Indian government. The fight in Afghanistan between the Pushtun Taliban and the coalition of movements in the northern alliance. And the communist insurgency in Nepal, which is getting worser every month.

In South America, in general there are problems with the drugs/criminal organisations which undermine the countries in the northern part of South America. And the more serious problem, namely, the fight between two leftist organisations, the FARC and the ELN, againt the government in Columbia.

The former territory of the Soviet Union. The fight between the Chechnian minority against the Russian government in Chechnya. The fight in Uzbekistan, Kyrgyzstan and Tajikistan against the IMU, an islamic movement fighting for the establishment of an Islamic state in Uzbekistan.

The problems in South-East Asia and Pacific Asia. The fight between the Karen and Shan minorities in Myanmar against the government. And the regular clashes at the border with Thailand between the Myanmar army and the armed forces of Thailand if the Myanmar security forces cross the border in pursuit of the Karen and/or Shan resistance movements The fight in the Philippines between the government and the Islamic/Moro movements in the south of the country. And the Philippines are facing a resurgent communist party, NPA, who are gaining strength and are increasing the actions against the government, often in cooperation with the Moro movements.

The African continent is facing probably the most intensive and deadliest conflicts.

The fight in Guinea between the Guinean armed forces and rebel movements out of neighboring Sierra Leone. The fight in Sierra Leone between the government with support of the ECOMOG and the forces of the RUF. The socalled first Great War of Africa in the Democratic Republic of Congo, DRC. The DRC is deeply divided by several movements with external support who fight eachother for the control of the country and its wealthy resources. The fight in Uganda between the several opposition movements and the government who want to eliminate the current government. The struggle between the Tutsi dominated government and the surpressed Hutu majority in Burundi. And finally the decade long fight in Angola between the government controlled MPLA and the rebellious UNITA.

These are the largest and intensive conflicts in the world and the world seems to get a couple of new conflicts added to the already to long list. Beside the here mentioned conflicts there a number of conflcts which are relatively small and are therefore not listed . Never the less these conflicts are dangerous and deadly but will probably be contained, remain small of scale and probably have a chance to be ended on the short term

The new or better intensified conflicts are on the Balkan, in the Middle East and in Indonesia. And these might if Murphy’s Law has a part in it become really dangerous and involve more countries.

Balkan

The last decade has not been a peaceful decade on the Balkan. The fragmentation of Yugoslavia did not happen without any problems. With the exception of Slovenia, all other new countries experienced problems in becoming an independent country. At first the problems with the Serbian dominated government in the former Yugoslavia about the establishment of an independent country. And secondly, there after the worsest of both, the internal struggles between the several ethnic groups in the societies of Croatia and Bosnia.

The last victim of this kind of conflict is Macedonia. The Albanian minority in the country with rather large support from Albanians out of Kosovo, and probably even on their instigation demand to be equally treated by the Macedonian government.

Another UCK kind of army/movement has become active in Macedonia. This organisation came out nothing. It was established within about two weeks. They call themselves, National Liberation Army, NLA. The NLA is probably led by Albanians out of Kosovo but is recruited mainly in Macedonia.

The first operation of the NLA was at the same time the birth of the organisation. The NLA occupied some hills in Macedonia and started to attack a couple of towns, Tetevo and surroundings, with long range ineffectual shootings. The NLA is hoping to receive massive support from the Macedonian-Albanians in their fight against the Macedonian government. The Macedonian-Albanians have until now an attitude of wait and see what is going to happen. Even if they support the idea behind the actions of the NLA. At the moment they are not certain about what to do, they support them because they are Albanians but do not yet accept the violence they use.

The reaction of the Macedonian government has been gradual. At first the Macedonian government reacted with police forces to end the problem but later they sended army units with heavy equipment to defeat the NLA. In the beginning the police and army forces returned fire from the build up areas and did not enter the mountains where the NLA was firing from. Attempts to seal the area were made but they were not be very succesful to defeat the NLA. Later on the Macedonian forces were moving into the mountains where they trapped the NLA. The strength of the NLA force which is fighting the governement is estimated from as low as 50 fighters to as many as 300 NLA fighters. As the Macedonian army moved into the area the majority of the NLA fled the area but a part remained and digged themselves in. This will be however a matter of time until they will be removed. The use of the heavy weapons have been limited until now for the danger of civilian casualties and not to receive any comments of the media and the west that they were using excessive and indiscriminatory violence to force out the NLA.

The KFOR in Kosovo is at the same time busy to seal of the border between Kosovo en Macedonia to make any support out of Kosovo difficult if not impossible.

The danger of this new action of the NLA in Macedonia is the idea behind these new operations. They are not fighting for equal rights, the Macedonian-Albanians are supposedly treated as second class civilians which they are certainly not, they have been treated different in the past but since then the situation has improved and will continue to improve.

The NLA is essentially having a hidden agenda. They want to create a great Albania, consisting out of the Albania, Kosovo, the territories with a large number of Albanians in Macedonia and the Presevo-Medevo area in Serbia which is also inhabited by a majority of Albanians.

These ideas were already visible in the Kosovo conflict but was downplayed by all involved parties. The NLA is planning a replay of the Kosovo conflict, first start a civil war, which includes the help of the whole population and there after create large number of fugitives and stories of massacres to force the international community, read NATO, to intervene and create a defacto independent new country.

The family/clan structure of the Albanian society, with the vendetta thinking, will promote the support of the NLA but the price paid could proof to be to high.

It will be not that easy this time to get the support they had in the Kosovo conflict. The Albanians had in Kosovo the advantage of being the victim of the bad Serbians, a long time of suppression and a number of years of peaceful resistance.

The cards in Macedonia are totally different, it is true the Albanians were suppressed in the use of their own language and culture just after the beginning of Macedonia as an independent country. But at the moment there had been made progress to the improvement of the conditions of the Albanians in Macedonia. They can use their own language, have their own schools, even an university, can live according their own customs, have a large political freedom in their own region and are represented in the national government. So they are hardly the second class civilians the NLA claim them to be. They have received everything short of an independent Albanian state from the Macedonian government.

The NLA can and will start a new guerilla war in Macedonia, get even some support out of the local population and inflict damage to the government and the relations between the moderate Albanians and the government but they will not be as succesful as in Kosovo. Militarily and politically they will be much weaker and need to fight on their own, with the only supporters in Kosovo and Albania proper. They might have large stocks of weapons and ammunition in Kosovo but fighting a long conflict is an expensive business and the resources are limited.

They certainly will not receive international support and even large number of refugees will not impress that much anymore, as they can only go to Kosovo and Albania and live over there in poverty. And most importantly the refugees, Albanians will be blamed for their own miserable position. But considering the policy and objective of the NLA movement they will not care to much about the well beingof the local population as they consider their objective as the higher value, and much more important to achieve.

The problem of this conflict is that if the impossible should happen, the desintegration of Macedonia, then you would get an area wide conflict. Several countries would want to claim a part of Macedonia, and there would be several overlapping claims. The following countries would be willing to claim a part; Albania, Greece, Bulgaria and Serbia. Greece is the strongest of the four, but alliances could make the conflict really nasty and long. This is the large scale scenario.

The small scale scenario is that the NLA will continue their war against the Macedonian government, involve it in a longer guerilla war and some how achieve to gain their own nation or a greater Albanian nation with parts of Macedonia. This will leave a crippled Macedonia behind with the neighboring countries aspiring also some territorial changes. In the end leaving an economic unviable nation behind. Or ofcourse that the NLA can get support from other Albanians and even Albania proper and pull these two countries in a low to mid intensity long drawn conflict. With both sides getting as much support as possible from other countries. And eventually drawing them into the conflict.

The only policy to implement for Macedonia is to defeat the NLA rebel forces and to win the hearts and minds of the Albanians. The defeat should be intelligent as a scorched earth policy and to much killing of civilians will only increase the strength of the NLA. The hearts and minds policy should give the Albanians the same rights and an equal treatment in Macedonia. In this case it is benificial to do so as a generous attitude is te only way to built a lasting peace. But the NLA or violence in general is unacceptable as any negotiation on the basis of the threat of violence will only increase the demands of Albanians, and they will never get enough whatever they are offered.

Middle East: Israel and the Palestinian question

The much promising peace process in the Middle East collapsed after the Al Aqsa intifadah got on his way and the majority of the cooperation between the Israeli government and the Palestinians ended. The mutual cause, the achievement of peace in the region, ended as the insecurity in Israel and the frustration in Palestine took over control.

The peace process which was already slowed down because of the lack of progress in the implementation of the accords which were agreed upon on during previous negotiations. The socalled big offer of former prime minister Barak to the Palestinians was an unacceptable offer for the Palestinians, Arafat. They could have never agreed to that as East-Jerusalem, the return of the Palestinian fugitives from the neighboring contries and the return of 90 % + of the West Bank without conditions are an absolute minimum which should be fulfilled.

The visit of Ariel Sjaron to the Temple Mount, Al Aqsa, was the sign for the Palestinians to show their frustrations with Israel and the peace process. The escalation of violence in the time following the incident destroyed all further hope on a fast and easy end of the Israeli-Palestinian conflict.

The Palestinians first escalated the violence by attacking several kibbutz and Jewish settlements on the West Bank. They fired with assault rifles/machine guns at those places and the Israelis reacted harshly at the attacks but by now the Palestinians are preparing another kind of intifadah. The Palestinians want to end the attacks for the moment and change their tactics and have another peaceful, if you can call it that way, resistance. The Palestinian people should be involved again to make life very hard for the Israeli security forces. A popular revolt without using violence is always very difficult to control. It will take a higher toll on the Palestinians but the security forces will get all the blame if there are any casualties.

From a media viewpoint this strategy will bring them a good press and put Israel in the corner of the ruthless and suppressive occupation power. The effectiveness of the attacks of the Palestinians, or better of the Tanzim and the Hamas, was not very high. It has not been very damaging for Israel only irritating and it gave them an excuse to close down the Palestinian territories, destroy the local economy and suppress all resistance with all means available. This means the use of armoured forces and rocket launching helicopters. Not very appropriate to defeat the Tanzim and the Hamas but very impressive. The Palestinian case was however not be promoted by the agression of the Tanzim and the Hamas and it even did not bring to much international support. Even no widescale Arab support, only words that the Arab nations supported the Palestinian claim and position but no real support.

That is probably the main reason why the Palestinians, the Tanzim, decided to change directory of their actions. Peaceful resistance is less impressive but much more beneficial to the cause.

Any public statements that the Palestinians will return to violence on the very short term as a reaction to any Israeli attack on Palestinian people and property is mere a public relation play to garner more support in the population and to satisfy the hardliners in the PA.

At a later stage the Palestinians can always return to a more aggressive position towards the Israeli security forces, especially if they were to use the succesful tactics which were used by the Hizbollah in Lebanon. But at this stage it would be to early as the Israeli position is still to strong and would first need to be softened up.

This will deliver international support and progress for the Palestinian cause. And it will put Israel in a worse position militarily and politically, undermine the moral of the security forces and the Israeli society as an end to the Palestinian uprrise would not be feasible and this would improve the position during any negotiations. As peacefull resistance is not really violence, it is just very uncomfortable and difficult to deal with. The Palestinians would to be protrayed as the good guys, and civil disobedience and peaceful demonstrations make this possible. The Israeli security forces will inevitably overreact and use excessive violence and will be portrayed as the bully and occupier.

To really reach this the Palestinians, Palestinian Authority, have to create a bigger difference between the Palestinians, PA and the Tanzim and the Hamas. The Hamas is having a different ideology and will continue to use violence, bomb assaults, against the Israelis. This would be bad for the PA in any possible negotiations but on the other hand beneficial to keep the pressure on Israel. A twin track policy, uncoordinated and without any relations between eachother what so ever, could be the best for the Palestinians on the medium to long term and not considering the costs in human life. The Hamas as the uncontrollable religious fanatics and the PA as the moderate and reasonable opposite.

The continuation of the violence, shootings, and even possible incursions of the Hizbollah would be on the other hand undermining the Palestinian position. It would deliver the security forces an excuse to use all means available and could even lead to the involvement of Syria in the conflict. A widening of the conflict to the neighboring countries would be just as useless as the continuation of the violence. It will bring no international support to the Palestinian cause, it will only be beneficial to the Israeli position.

A new conflict in the Middle East is always possible but this should not be overestimated. An Israeli attack in response to an act of terror of the Hizbollah on Syrian targets might call for a Syrian reaction. The military potential of Syria is at the moment however limited and certainly not capable of fighting against the much superior IDF. So an escalation is not very likely. And in the first place Israel will only attack Syrian targets in Lebanon if they might pose a direct danger to Israel or the IDF and not out of retaliation. The political consequences of an attack might be worser that the military consequences.

That is why the target selection in Lebanon has to be very careful and only aimed at the Hizbolllah and Lebanese targets more or less connected to the Hizbollah.

Indonesia

The problems in Indonesia are not only limited to troubles in the outer provinces/islands were independence and autonomy movements are putting heavy demands on the Indonesian government. They are willing to use, as they do, violence to support their demands.

Ethnic and religious differences are also playing a major role in the problems in the outer provinces/islands. The local population is ventilating their problems with the migration policy of Jakarta. The large number of migrated people, who very often live in better circumstances, are being targeted by the local population. This is further aggrevated by the fact that the migrants are supported in return by socalled Jihad fighters from Java to protect and support the migrants in the troubled areas. This is fuelling the conflicts in these areas to a large extent.

There is another probably even larger threat to the stability in Indonesia. The government of Indonesia is at the moment relatively weak. The current president, Abdurrahmann Wahid, is under pressure because of several scandals and his rather indecisive style of government. There are demands that he should withdraw. This situation is further worsened by the fact that the economy of Indonesia is still very weak and dependent on foreign aid, loans, to survive.

The greatest danger in Indonesia is however that all political organisations have their own kind of militias and these are more than willing to fight other parties if they consider that their man has been treated unfairly. And it is rather simple to make them feel unfair treated as only not to agree with them is enough to get their attention and to feel their displeasure. This displeasure will be felt by the agression which they are more then willing to use.

Indonesia received last month an impression of what could happen if the differences between the parties would come into existence. The militia of Wahid, or to be correct of the organisation, Nahdlatur Ulama, NU, of which he is chairman, went on to the streets and destroyed party offices of political opponents in the East and the center of Java. If Wahid woud be removed from office, it could be likely that there would be an explosion of violence.

There are 4 major parties in Indonesia which could create chaos and ofcourse a fifth group, the armed forces, which also could play a decisive role. Some kind of civil war is certainly possible. Even if the security forces, the armed forces and the police, should be able to restore order on the short term with the use of excessive violence. But it could turn out different if the disorder could spread and the security forces would be slow in their reaction. And there would always be the question of loyalty in the security forces. It could happen that parts of the armed forces join of the fighting parties. Civil war could be much more close than is anticipated.

The four parties are the NU, 40 million members, with its Banser militia. The Banser militia also played a major role in the past, in 1965/66, as about half a million alleged communists were killed in the socalled left coup d’etat. There is also a considerable threat from the NU with the Banser militia. The militia is very loyal to the NU and have no doubts about the justness of the NU. The Banser militia is mainly recruited out of the Pesantren Islamic schools. So this could even deliver a religious quantity to the possible struggle. And the NU is willing to use the Banser militia to reach their goals. As have been proven in history.

The second, the old Golkar party with its old structures. Not as strong anymore as it used to be but still an important party in any possible struggle for power.

The third is the party of the Muhamadiyah led by the chairman of the Peoples Congress Amien Rais. The Muhamadiyah is an like the NU an Islamic organisation with 28 million members. The relations between the two are not very good as they fight for about the same people and goals. The Muhamadiyah is only sometimes claimed to be a little more fundamentalistic than the NU.

The fourth party is the PDI-P of vice-president Megawati Soekarnoputri with the Satgas militia. The militia is already used for all kind of guard and support jobs but Megawati has until now not made any use of the Satgas in political problems. At least until now, this might change in an all out conflict between the major political parties if Wahid would be forced to leave office.

As long as Wahid is president the situation will remain relatively calm. There might be demonstrations but not an all out conflict for power. But if Wahid would be forced to go, things could change overnight. A kind of civil war could erupt between the four major parties about who would succeed Wahid. Megawati would try to get power with support of the political system but none of the others might be willing to accept Megawati as president. Or will try to achieve control by the use of their militia. Or the likeliest the Banser militia will out of frustration start to revolt and this could put the whole country into jeopardy.

A civil war is the most likely result of the ejection of Wahid, if he is not prepared to go by himself. The security forces should be able to restore order but it is uncertain if the officers corps cannot agree to a new leader. And even more important, if the NCO’s and soldiers do not agree with the decision of their commanders. There is also a chance that the security forces will be split in several factions each supporting one of the parties involved. This would severely undermine Indonesia as the movements in the outer provinces/islands would be more than willing to use this internal weakness of the central government to draw more control from the government.

The highly dangerous combination of unrest in a number of provinces in the country and the fragmented leadership in the center might destroy the country. The problems with the several seperatist movements in the countryside is putting enough tensions on the integrity of Indonesia. A conflict in the center of government between the major parties would mean the end of Indonesia as we know it.

The armed forces could use this troubled sitiation as a last bid to recover the power they have lost in the recent years but this is a really dangerous attempt as they are not the same as before the changes. Command structures have changed, alliances broken, there is certainly not the old used to be loyalty present. And more importantly the economic situation will not leave much room for dangerous experiments which are sort of mixed with suppression and military rule.

The problem in Indonesia is, can they solve their problems politically or face a civil war. The civil war scenario is very much likely as all involved parties are ready to start and fight a civil war. The political system and the parties participating in it have the key to the future of Indonesia. But somehow they are to busy with promoting their own position and cause, which will make a conflict about power more likely.

IN-SE Services

Intelligence – Security Services

Categorie archief: Reports 2001

Index 2001

December 2001

November 2001

October 2001

September 2001

August 2001

July 2001

June 2001

May 2001

April 2001