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If you think you’ve heard all the worst horrors about the Islamic State, think again.

There are other shocking truths that few outside of their controlled territories know about, some of which will have major consequences for American investors and the entire world.

Consider my friend Hamid, a 32-year-old Sunni Muslim, who teaches engineering in Mosul, the largest city in the world that’s controlled by the Islamic State.

I first met Hamid online in the summer of 2009, exactly five years before the Islamic State conquered his city in 2014.

He and I had just joined a Web platform for exchanging foreign languages and culture, and we talked via Skype regularly. In the following year, I helped him apply online for a Master’s program at a German university. But he missed getting in by a hair and eventually decided instead to settle down in Mosul, get married and start a family.

But now, with ISIS in control, he’s trapped. No one is allowed to leave. He can’t even get his sick father out of town for urgently needed surgery. And the horrors of life in Mosul under the Islamic State are well known:

Male adulterers are thrown from high buildings; females, stoned to death.

A widowed and impoverished mother of four recently told the Guardian she had her hand chopped off for stealing.


Even small infractions like smoking cigarettes are punished by public floggings.

Christianity is punishable by death. Thousands belonging to religious minorities have been raped and massacred. Even children in Mosul have been subjected to the same fate.

But what’s not well known is the environment under Islamic State that Hamid has been describing to me in recent months. In an ironic twist of fate, his stories can be even more frightening than some of the horrors …

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The Islamic State as a Country

The Islamic State is not just a global revolutionary movement. It’s a country. It has a functional government, complete with Ministries of Education, Culture, Justice, Transportation, Energy and more.


Mosul, despite Islamic State rule, remains a bustling metropolis on the Tigris River with Iraq’s second largest university.
Mosul, which has been controlled by the Islamic State since June 10, 2014, is a modern, bustling metropolis larger than Philadelphia.

And here’s what’s so worrisome: Despite some grumbling and resistance, life in Mosul has taken on all the trappings of a new normal — on the streets and outdoor cafes; in schools, offices and factories.

Yes, in the early days of the Islamic State’s conquest last year, grandiose displays of military prowess and violence dominated city life. But now those are mostly gone and street life has taken on an air of regularity, even calm.

Its university, where Hamid teaches, remains one of the largest educational centers in the Middle East.


Electronic Engineering College, Mosul, Iraq.
Last year, the Islamic State authorities shut it down and Hamid was temporarily out of work. But a few months later, they reopened it with thoroughly revised Islamic curriculums for the College of Medicine, College of Sciences, College of Electronic Engineering, College of Arts, College of Law, College of Administration and Economy, and many more.


All schools in Mosul were closed for two quarters and then reopened with an extremist revolutionary curriculum.
Despite the hardships, he’s glad to have his job back, relieved his courses continue to exist.

The new government did the same with the city’s public schools, the local government counsels and departments, offices of private companies, and factories — brutally and consistently imposing an extremist revolutionary ideology.

Nevertheless, men drive to work in the morning. They go home to their families in the evening. They go to mosque on Friday. And they take their children to weekend outings by the Tigris River.

People struggle with power outages, as they did before the Islamic State. But they grumble less; complaints and resistance are promptly and severely punished. The crime rate has plunged.

Moreover, the majority Sunni population has largely accepted — and some have even welcomed — the new order.

This isn’t just Hamid’s version of the on-the-ground reality. It’s also corroborated by other sources.

One Mosul resident reports that “ISIS, with all its brutality, is more honest and merciful than the Shia government in Baghdad and its militias.”

Another told The Wall Street Journal “I have not in 30 years seen Mosul this clean, its streets and markets this orderly.”

Nor is this just a superficial veneer.

It goes to the heart of everything
that’s dead wrong about the
West’s theories, tactics and plans.

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All schools in Mosul were closed for two quarters and then reopened with an extremist revolutionary curriculum.

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What Happens When Extremists Take Power

Stephen M. Walt, a professor of International Affairs at the Harvard Kennedy School, explains this phenomenon in Foreign Affairs magazine. He writes …

“To many who have witnessed its brutal tactics and religious extremism, the Islamic State seems uniquely baffling and unusually dangerous. According to its leaders’ own statements, the group wants to eliminate infidels, impose sharia worldwide, and hasten the return of the Prophet. The Islamic State’s foot soldiers have pursued these goals with astonishing cruelty.

“Yet … the Islamic State has also sought to build the rudiments of a genuine state in the territory it controls. It has established clear lines of authority, tax and educational systems, and a sophisticated propaganda operation. … ISIS is a country now.”

The first time in history that terrorists have created a country? Not at all — the second shock to most observers.

“The group” Walt continues, “is strikingly similar in many ways to the regimes that emerged during the Russian, Chinese, Cuban, Cambodian, and Iranian revolutions. These movements were as hostile to prevailing international norms as the Islamic State is, and they also used ruthless violence to eliminate or intimidate rivals and demonstrate their power to a wider world.

“Revolutions replace an existing state with a new one based on different political principles. These upheavals are usually led by a vanguard party or rebel group, such as the Bolsheviks in Russia, the Communist Party in China, the Khmer Rouge in Cambodia, or Ayatollah Ruhollah Khomeini and his followers in Iran.

“Sometimes, a revolutionary movement overthrows the regime on its own; other times, it exploits a power vacuum after the old order has collapsed for other reasons. …

“Revolutionary organizations portray their opponents as evil, hostile, and incapable of reform. Compromise is therefore impossible, which means the old order must be uprooted and replaced.

“Vladimir Lenin and the Bolsheviks insisted that only a thoroughgoing revolution could eliminate capitalism’s inherent evils, and Mao Zedong told his followers, ‘The imperialists will never lay down their butcher knives.’ Khomeini thought likewise about the shah, instructing his followers to ‘squeeze his neck until he is strangled.’

“The Islamic State is no different. Its leaders and ideologues portray the West as innately hostile and existing Arab and Muslim governments as heretical entities contrary to Islam’s true nature. Compromise with such infidels and apostates makes no sense; they must be eliminated and replaced by leaders following what the Islamic State regards as true Islamic principles.

“Revolutionary organizations preach that victory is inevitable, provided supporters remain obedient and steadfast. Lenin argued that capitalism was doomed by its own contradictions, and Mao described imperialists as ‘paper tigers,’ both thereby reassuring their followers that the revolution would eventually triumph.

“The Islamic State’s current leader, Abu Bakr al-Baghdadi, offered a similarly upbeat assessment in November 2014, telling his audience, ‘Your state is well and in the best of conditions. Its advance will not cease.’

“Leaders of revolutionary movements usually see their model as universally applicable. Once victorious, they promise their followers, the revolution will liberate millions, create a more perfect world, or fulfill some divinely ordained plan. … Khomeini and his followers saw the revolution in Iran as the first step toward the abolition of the ‘un-Islamic’ nation-state system and the establishment of a global Islamic community.

“In the same way, the Islamic State’s leaders believe that their fundamentalist message applies to the entire Muslim world and beyond. In July 2014, for example, Baghdadi declared that the Islamic State would one day unite ‘the Caucasian, Indian, Chinese, Shami [Syrian], Iraqi, Yemeni, Egyptian, Maghribi [North African], American, French, German, and Australian'”

This is a key reason why the Islamic State uses social media to spread its message. This is why it’s so quick to claim credit for violent acts such as the recent downing of Russia’s Metrojet Flight 9268 over the Sinai, the recent bombing of Beirut and the terrorist attacks in Paris. And this is also why it has released a series of new propaganda videos, threatening Washington, New York and beyond.

“The problem,” writes Walt, “is that revolutions create great uncertainty, which in turn fosters miscalculation. For one thing, outsiders often have little direct contact with the new regime, so they cannot gauge its true intentions and level of resolve or clearly communicate their own redlines. Few outsiders have met with the Islamic State’s top leaders, for example, so it remains mysterious what they really believe and how resolute they will prove to be. …

“Europeans and Americans obsessed about the spread of Bolshevism after 1917 and otherwise sensible people succumbed to McCarthyism in the 1950s.

“To make matters even more confusing, revolutions also generate a flood of refugees fleeing the new regime. Eager to persuade foreign powers to help them return home, exiles typically offer lurid accounts of the new state’s crimes (which may well be true) while suggesting the new regime can be easily defeated. …

“Russian, Chinese, Cuban, Iranian, and Nicaraguan exiles made such claims to convince foreign powers to intervene in their home countries, but governments who took their advice usually came to regret it.

“Ironically, the uncertainties that accompany most revolutions can sometimes help the new state survive. … In Iraq, Saddam Hussein mistakenly believed that the fall of the shah had left Iran open to attack, but when his forces invaded the country in 1980, the clerical regime mobilized new sources of military power, such as the Revolutionary Guard, and turned the tide of battle in Iran’s favor.


“It is also impossible to know for certain whether a revolution will be contagious, but there is usually some reason to fear it might be. Revolutionary states’ ambitions inevitably strike sympathetic chords abroad and convince some number of foreign sympathizers to flock to their banner. … Westerners such as the Harvard-educated social activist John Reed journeyed to Russia following the Bolshevik Revolution. Such reverberations reinforce fears of contagion. …

“At the same time, just as with past revolutionary movements, efforts to defeat the Islamic State have been undermined by opponents’ conflicting priorities.

“Both the United States and Iran want to see the end of the Islamic State, but neither country wants to help the other gain influence in Iraq. Turkey also views the group as a threat, but it loathes the Assad regime in Syria and opposes any actions that might strengthen Kurdish nationalism. Saudi Arabia, for its part, sees the Islamic State’s fundamentalist ideology as a challenge to its own legitimacy, but it fears Iranian and Shiite influence as much, if not more.

“As a result, none of these countries has made defeating the Islamic State its top priority. Its penchant for violence and use of sexual slavery notwithstanding, there is little that is novel about the Islamic State. Its basic character and impact are strikingly similar to those of earlier revolutionary states. We have seen this movie many times before.”

My view: It all leads to a single conclusion: Contrary to what the Obama Administration hoped last year, the Islamic State will not die a sudden death, the victim of its own brutality. And contrary to what most in the West may hope today, it will not be easily contained by stepped up security or promptly destroyed by more bombings.

Rather, the reality on the ground in Mosul, the rapid spread of the Islamic State globally, and the sophistication of its recent terrorist attacks are all evidence of a scourge that’s going to be around for a long time and get a lot worse.

The Islamic State is at war with the world; and the world is at war with the Islamic State. It is the Islamic State War.

What Will Happen Next?

Some, like Walt, argue that the more the West steps up its attacks against the Islamic State, the more it will legitimize their extremist ideology … and the more it facilitates their global recruitment of jihadists. This is true. And this is what will happen.

But others argue, with equal strength, that the more we turn a blind eye to this new country’s horrific brutality, the more powerful and dangerous it will become. This is also true. And this will also happen.

How this debate will be resolved is itself very debatable. But both opinions point unanimously to the same conclusion I just gave you. No matter which path the West chooses — more attacks or more neglect — the same four shocking realities prevail:

1. The Islamic State is a country.

2. It’s digging in and not going away — much like other revolutionary movements in the past that have lasted for many decades.

3. The Islamic State War is spreading and escalating.

4. We are facing a kind of World War III.

For investors, the consequences are both big and immediate:

1. The Islamic State War is now the world’s most powerful driver of flight capital to safe havens.

2. The money is fleeing from regions that are most directly impacted by the turmoil, especially the Middle East and Europe. And it’s rushing, in a series of tidal waves, to the markets least impacted by the turmoil — mostly the United States.

3. This helps explain why the U.S. stock market has enjoyed so much strength despite so much bad news on the economic front. And it also helps explain why it’s the highest quality, largest and most stable U.S. stocks that have been going up the most.

It also tells us these trends are likely to continue, but always accompanied by extreme high risk.

Stay safe.

Good luck and God bless!

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