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Editor's Note: Below is a complimentary research note written earlier this week by National Security analyst General Dan Christman. To access our Macro Policy research email sales@hedgeye.com.

Geopolitical Risk: It's Right To Be Worried - z MadMadWorld final

For at least two years, the international scene has been filled with more than a dozen global challenges taking place simultaneously. What's happened in the last two weeks is that simultaneous challenges are quickly being converted into simultaneous crises.

To add to the worry, particularly since the departure a year ago of National Security Advisor HR McMaster, it's no secret that our national security policy machinery is barely capable of addressing even one foreign policy crisis; now there are at least four, and the geopolitical risks for each are mounting rapidly:

  • North Korea: the "era of good feeling" is coming to an end; the policy question now looms: is Trump willing to accept incremental progress with Kim Jong Un, or does he persist with the all-or-nothing "moonshot" of total and immediate de-nuclearization? 
  • China: the PRC is not about to change what makes China China, just to get a deal with Trump; but an eventual, tapered-down agreement still seems likely later this summer.
  • Iran: except for Israel and the Saudis, Trump and the U.S. are alone on this; and the mullahs' legitimacy, as well as their penchant for risk-taking, is on the rise, despite the economic setbacks.
  • Venezuela: Maduro's days are still numbered, but Putin now has a seat at the hemispheric table.

What makes President Trump's national security machinery sputter is bureaucratic "stove-piping" – an age-old challenge for sure, but made worse now by executive branch fiefdoms and the lack of an overall strategy. The result? Actions in one area (e.g., Venezuela; North Korea) are undercut by uncoordinated initiatives elsewhere (e.g., activating the ‘95 Helms-Burton Act, to the chagrin of allies working to unseat Maduro; more China tariffs, when their help with Kim is a prerequisite).

  • Trump has prioritized rectifying trade deficits and reversing Obama's foreign policy, to the exclusion of almost everything else. And if the worries weren't bad enough, now John Bolton enjoys virtually unfettered freedom to pursue his old bugbear, Iran.
  • Ironically as we are learning of late, the best "guardrail" against an all-out U.S.-Iran war may well be President Trump!

We've been fortunate for 27 months that rising tensions have been buffered by good fortune and love letters. That good fortune is rapidly disappearing. Watch for at least two indicators that can quickly put us on the road to military confrontation:

  • North Korea test fires an ICBM, not just more short-range missiles.
  • Iran ramps up its harassment of Gulf shipping that's flagged to our regional friends, and attribution to Tehran is clear. 
    • Or, in the coming weeks, starts enriching above the roughly 4% threshold in the nuclear deal, or starts spinning more than the 5000 centrifuges allowed under the   JCPOA.
    • Or, even worse, through a proxy, harasses a U.S. ally, and in the process, accidentally kills an American.

These are delicate moments; and "nervousness" now is not an irrational feeling.

Bottom Line? Geopolitical risk has been underpriced. Markets are beginning to correct.

* * * * *


LTG Dan Christman, USA, Ret. serves as Hedgeye Potomac Research’s Senior National Security Analyst, providing deep insight into international affairs and national security.  Most recently, Dan provided strategic leadership on international issues affecting the business community for organizations such as the US Chamber of Commerce.  Dan’s long history of leadership includes his service as a United States Army lieutenant general and former Superintendent of the United States Military Academy.  He served in highly visible and strategically important positions and four times was awarded the Defense Distinguished Service Medal, the nation's highest peacetime service award.

He also served for two years as assistant to the chairman of the Joint Chiefs of Staff, during which time he traveled with and advised Secretary of State Warren Christopher.  He was centrally involved during this period with negotiations between Israel and Syria as a member of the Secretary's Middle East Peace Team. Further, Christman represented the United States as a member of NATO's Military Committee in Brussels, Belgium.

Graduating first in his class from West Point, Christman also received MPA and MSE degrees in public affairs and civil engineering from Princeton University and graduated with honors from The George Washington University Law School. He is a decorated combat veteran of Southeast Asia, where he commanded a company in the 101st Airborne Division in 1969.