Is Mr. Market Playing the Role of Pavlov’s Dog?


David Rosenberg is one of the most respected voices in the investing world. His Breakfast with Dave goes out to thousands of appreciative subscribers nearly every business morning. He has also been the leadoff hitter at my Strategic Investment Conference every year for several years running – and this year will be no exception. He is always one of our top-rated speakers, and his energy gets the conference up and rolling.

To everyone’s surprise, Rosie turned bullish in a big way at SIC six years ago. Now he’s cautious – in a big way – as you’re about to see. Rosie is the Data Meister, and in today’s Outside the Box he runs the numbers on today’s economy and markets and comes off as downright incredulous:

It is amazing, I have to say, to see Mr. Market respond to the same [“Trump rally”] language over and over and over. It is a present-day version of Pavlov’s Dog.

More discussion of tax cuts, deregulation and infrastructure, and again, the market soars on what really is old news by now. Or should be.

The fact that this is all still rhetoric, with no details or timetable provided, should be a bit worrisome.
 
I am in a very cold New Jersey surrounded by lots of snow, but the roads are clear.

Dallas shuts down with a few inches of snow, but NJ is up and going the next day.

Even the park across the street has shoveled all its sidewalks. Not that I will be taking a stroll in 20 degrees with 30-mph winds.

I am here doing three speaking events in two days to what I am told will be packed rooms. Lots of Q and A, which really gets me going as there is just so much to talk about.

And between sessions life is filled with meetings, research, and writing. Always writing. O, deadline, where is thy sting?

I note with sadness the recent passing of two of the older stalwarts and longtime friends in the investment writing world, Bill Donoghue and Larry Edelson. Bill was the money market guy back when money market funds paid 15% and then segued into mutual funds. Jazz aficionado and wine expert, he once asked me to spend an afternoon consulting with him. My price was a visit to his cellar, where I chose the wines we had for dinner. One of my better trades. He will be missed. And Larry was the lead writer for fellow publisher Weiss Research. He was a writing machine, cranking out enormous amounts of marketing copy and writing five monthly letters on a wide variety of topics as well as weekly columns. He was based in Bangkok for years, where we had some great times. His emails were always on target.

You have a great week.

Your trying to stay inside analyst,

John Mauldin, Editor
Outside the Box


Is Mr. Market Playing the Role of Pavlov’s Dog?

 

By David Rosenberg, Chief Economist & Strategist, Gluskin Sheff


If you mix your politics with your investment decisions, you’re making a big mistake. 
– Warren Buffett, February 27th, 2017
 

Sage words indeed, and likely true.

After all, Herbert Hoover had the biggest honeymoon of all and look what happened down the pike.

The markets tripled under two “socialist presidents” (Bill Clinton and Barack Obama) and slid 35% under the “pro-business” George W. Bush administration.

Even Ronald Reagan’s first two years in Office were rocked by a 25% plunge in the stock market after a brief though powerful bounce following the November 1980 election.

What you see isn’t always what you get, and it is likely a mistake to extrapolate today’s market performance into the future.

Admittedly, the charts, momentum and fund flows are all very positive (U.S. equity exchange-traded funds took in a huge $22 billion of net inflows last month).

But some aspects of the technical picture have become muddled – the share of NYSE stocks trading above their 200-day moving average is at the highest level in nearly four years (a sign of overextension).

Sentiment is wildly bullish, and while it has been such for weeks now, we have hit some pretty extreme levels.

The Investors Intelligence poll now shows there to be 63.2% bulls, up from 61.2% a week ago, and the highest since January 1987 (i.e. when we last saw the Dow on a 12-day winning streak).

The bear share fell a point to 16.5%, the lowest since July 2015 (and the correction camp is down to 20% – one in five see at least a 5% correction coming even though the declines roughly of this magnitude have happened at least once per year for 88 of the last 89). 

The bull-to-bear spread is now in proverbial danger-zone at 46.6 percentage points, up from 43.7 and just took out the 45.5 nearby high in February 2015. That is an ominous sign, even if not yet apparent amidst the euphoria. 

As per Bob Farrell’s Rule #9, in reference to the herd mentality:

When all the experts and forecasts agree – something else is going to happen.

Just because it hasn’t happened yet, doesn’t mean it is not going to.

And of course, that then leads to Rule #4, which also has to do with excessive manic behavior:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

They do not correct by going sideways!

And lurking in the background is the Federal Reserve, which is poised to raise rates sooner rather than later.

Monetary policy is profoundly more important to the markets and the economy than is the case with fiscal policy, though all the Fed is doing now is removing accommodation. 

A little bit of history – there have been 13 Fed rate hike cycles in the post-WWII era, and 10 landed the economy in recession.

Soft landings are rare and when they have occurred, they have come in the third year of the expansion, not the eighth.

And valuations don’t matter until they do matter, and we have a market priced for perfection right now – the S&P 500 is trading at 18.5x forward earnings per share, up a full point since Inauguration Day, and only 20% in the past were valuations as expensive as is the case today. 

So momentum, charts and fund flows are positives; valuation, technicals and sentiment are warning signs.

Take your pick, but as you do, take some profits as well.

While Warren Buffet likely is prescient, this continues to be labelled the “Trump Rally”.

Once again, the headlines are filled with the same old thing – tax cuts, deregulation, and infrastructure.

These were the Trump campaign planks and so when he got elected, the S&P 500 rallied 6.2% right through to Inauguration Day.

He then talked about these same themes, and investors (more likely algorithmic traders), thinking they were hearing something new, bid up the stock market by 4.1% right through to the State of the Union speech the other night. 

And then, one day past the address to Congress, the S&P 500 tacks on an extra 1.4%.

It is amazing, I have to say, to see Mr. Market respond to the same language over and over and over. It is a present-day version of Pavlov’s Dog.

More discussion of tax cuts, deregulation and infrastructure, and again, the market soars on what really is old news by now. Or should be.

The fact that this is all still rhetoric, with no details or timetable provided, should be a bit worrisome.

What if all this wonderful stuff doesn’t take place until 2018 (or later)?

Tax reform is no easy task; it took Reagan four years.

Relying on private-public funding for infrastructure has all sorts of question marks in front of it logistically, and take Canada as an example of how long the gestation period is – long.

And Trump did seem to tip his hat in favor of the border-adjustment tax, which would benefit exporters to be sure and over time incentivize production to relocate to the U.S., but the initial impact will be to boost import prices, impair household spending power, and risk a consumer-led recession as was the case in Canada when the goods & services tax (GST) was introduced in 1991.

The good news is that the speech was less sinister and dark than on Trump’s Inauguration address, though the protectionist themes were still quite evident even if emphasized less in this latest go-around.

The ISM manufacturing index really whipped up the markets even more yesterday which is almost like a case of double-counting since the one thing they both have in common is being measures of confidence.

The headline ISM manufacturing index spiked 1.7 points to 57.7 in February, with 17 of 18 industries reporting growth, and most components rising smartly (like new orders jumping 4.7 points to 65.1, the best since December 2013; backlogs jumping 7.5 points to 57.0; supplier delivery delays up 1.2 point to 54.8 – these are old Greenspan favourites and he may well have tightened intermeeting in the old days based on numbers like these).

The prices-paid component also was elevated at 68.0, though off from 69.0 in January, it compares to 65.5 in December and 53.0 in September.

The pre-“Great Recession” Fed would have had little trouble tightening policy right away based on this set of data.

But there are just a few nagging concerns. 

The first is that the rival Markit manufacturing PMI did not corroborate these ISM results. That diffusion measure actually dipped to 54.2 in February from 55.0 in January.

Second, all these recent juicy ISM manufacturing releases have only managed to squeeze a string of 0.2% MoM gains in manufacturing output. Okay, but short of stellar. 

Third, we know that the last time we had such a strong ISM manufacturing print (back in the summer of 2014), it actually coincided with a 5% annualized growth rate in real GDP.

We also know that this is hardly the case this time around, as an epic gap has opened up between the survey data and the actual hard data. Sentiment is nice, but it does not feed into GDP.

And so despite all the exuberance, the Atlanta Fed just cut its estimate for Q1 real GDP growth to 1.8% from the 2.5% projection it had with near consistency since the middle of February.

[Note from John: The Atlanta Fed relowered its Q1 GDP estimate to 0.9% from 1.2% after seeing the BLS report Friday and consumer spending and CPI today. Hat tip: Peter Boockvar.]

I see many forecasters as low as 1.5% and my old shop (BAML) is calling for 1.3% current quarter growth.

There was a time this cycle when such stall-speed was met with investor euphoria because it meant the Fed was going to ease policy further and liquidity is like a drug for the stock market.

But here we have the Fed poised to tighten into an actual economic slowdown.

The fiscal stimulus hope is just that – hope. Size, details and timing are still open for debate, but what is not, is that growth is slipping again.

As in:

·         Real consumer spending declining nearly 0.3% MoM in January (baking into the cake little better than 1% real PCE growth for this quarter; and this follows the soft tone to core capital goods shipments in January which has led to downwardly revised capex estimates).

·         Real disposable income slipping 0.2% MoM. The vagaries of a 0.4% spike in consumer prices cutting into real spending power.

·         Construction spending falling 1.0% MoM in January after a flattish December.

We know that the consumer is tapped out and there is no more such thing as pent-up demand.

Autos and housing have peaked and spending intentions for both have rolled off their cycle highs. 

Not even another month of blowout incentives and discounting could manage to take auto sales north of 17½ million annualized units in February (actually a tad below the 18 million annualized units in Q4, even in the face of the widespread price breaks – one sure sign of a market suffering from consumer fatigue).

The dollar will constrain exports, to be sure.

Government is not a factor. 

Commercial real estate is in its own mini-bubble and rising vacancy rates suggest that the impetus from this sector will wane.

So we are left with capital spending as the necessary lynchpin which is why Congress and the White House should be in a hurry to pass tax reform and engage in pro-growth deregulation.

Standing in the way of a boom, mind you, is the ample spare capacity underscored by a 75% industry capacity utilization rate.

Plus, with there already being $3 trillion of liquid assets sitting on the balance sheets of U.S. businesses, it’s not as if Corporate America was ever that cash-constrained to embark on at least a mild capital spending cycle. 

The arithmetic is daunting. 

Between net exports, consumer spending, government, housing and commercial construction, together they are unlikely to add more than 1% to growth this year and next.

This means that to get to the Trump vision of 3% growth, arithmetically we would need capital spending to begin to surge at a 20% annual rate or more, the sort of thing we have never seen happen before (at least over the past 70 years). 

So good luck with that. 

At best, look for 10% capex growth and that will then give us a 2% GDP trend, in line with what we have already seen this cycle (and believe me, I am being very generous here because even seeing 10% growth in capital spending in any given year is less than a one-in-five event). 

In other words, nothing will really change.

It’s one thing to have fiscal stimulus when there is pent-up demand, we are early in the cycle, and the Fed is accommodating the largesse (as it did with FDR, with Reagan and with Obama, and did not with Eisenhower and Bush Sr.). 

It is quite another story at this late stage of the cycle, following another debt-financed consumer spending expansion (as in sub-prime autos, credit cards), and with the Fed openly signalling its intent to lean against the wind. 

So we may get stimulus and a lot of it on the fiscal side, but much will be saved, not spent, as economic agents (us!) look into the future and realize that at a near-80% starting point on the net federal debt-to-GDP ratio, today’s largesse equals tomorrow’s tax liability. As I have recommended before, look up “Ricardian Equivalence”.

With headline PCE inflation gapping up from 1.6% YoY in December to 1.9% in January (as well as the 0.3% MoM bump in the core PCE index, which was the largest monthly increase in a decade), it is reasonably safe to say that we are starting to see some late-cycle inflation pressures emerge (while the core inflation rate remained at 1.7% YoY, the three and six month trends are quickly heading towards 2%).

This, however, remains in the context of secular disinflation, and inflation is a classic lagging indicator.

But it is creating a slowdown in the real (price-adjusted) data and undoubtedly will raise eyebrows among the FOMC hawks who are looking at this in the context of a prolonged sub-5% unemployment rate backdrop.

Fed Chair Janet Yellen herself is probably not too fussed by the inflation numbers, but her recent commentary has been “hawkish” for her (what happened to running a “high pressure” economy?) as she ostensibly fears the Fed is behind the curve and may have to do more tightening down the road (having waited so long to rekindle the rate-raising process that was started 15 months ago).

Just wait to see what happens if we get the fiscal boost and the Fed raises its growth projections, keeping in mind that as a group, it sees 3% in the fed funds rate as neutral (and we are still 225 basis points away from that mark). 

But take it from me, even getting to 2% this cycle is going to end up feeling a lot like 5.25% did in 2007 and 6.5% back in 2000.

In poker parlance, we have a pair of twos on hand to contend with by year-end – 2% growth (stuck) and a 2% fed funds rate (five hikes is not out of the realm of possibilities).

I started with Warren Buffett so it is probably appropriate that I leave you with three of his most pertinent pieces of advice, all the more relevant given today’s runaway market valuation:

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

Long ago, Ben Graham taught me that “price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Be fearful when others are greedy and greedy only when others are fearful.

lunes, marzo 20, 2017

HOW TO STEAL A RIVER / THE NEW YORK TIMES

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How to Steal a River

To feed an enormous building boom, India’s relentless sand miners have devastated the waterways that make life there possible.

By ROLLO ROMIG

 


Several years ago, I took a journey with my wife and baby daughter to my mother-in-law’s childhood home, a forest village in the southwestern Indian state of Kerala. As any Keralite will tell you, Kerala is the lushest, most watery corner of India, a skinny coastal strip where hundreds of tributaries merge into broad, winding rivers before finally flowing into the Arabian Sea. My mother-in-law’s village is named Manimala, for the river that provides its reason for being.

My wife spent her childhood summers in Manimala, and all her stories seemed to center on the river: the old stone steps that villagers descended to board a ferry or take a bath; the neighbors fishing or washing elephants; the flotillas of flowers that drifted downstream after monsoon gales. I’d been cultivating a fantasy that our own daughter would spend her summers on these banks. But when we arrived in Manimala, I was shocked: The great river had become a trickle. In a few places it had pooled into puddles big enough for people to wash their clothes. Otherwise it was barren, the stone steps now leading to a gouged-out ravine of pale boulders baking in the sun.

“What happened to the river?” I asked.

“Sand mafia,” my wife’s cousin Thambichan answered.

The Manimala, Thambichan explained, once had a sandy riverbed that in some places was 30 feet deep. The sand acted as an aquifer, regulating the river’s flow. But sand is also a crucial ingredient in concrete, and India is urbanizing at a speed and scale virtually unmatched by any country in history. Apartment towers, highways, bridges, skyscrapers, metros, dams: Each of them swallows unimaginable helpings of sand. It could line the rivers, or it could form the cities that were rising everywhere alongside them, but it could not do both at once.

“No one listened when we warned of the dangers of sand mining,” my wife’s uncle Shaji told me. With nearly all the sand removed from the river, the water table had dropped for miles around. When the monsoons came, the water whooshed away as quickly as the rain fell. The ordinary wells ran dry, so people drilled tube wells deep into the earth; now some of those were running dry, too. The local rice paddies were long gone. Along the river’s route, several major bridges faced collapse, because the loss of sand had weakened their foundations.

When Indians use the term “sand mafia,” they’re talking about the whole range of people who profit from illegal sand mining: the local laborers; the budding capitalists who own the trucks and earthmovers; the genuine mobsters who, in some places, organize the miners and offer extra muscle; the suppliers who act as middlemen between the mafias and the real estate developers; the police and officials who take bribes from any or all of the above. And the politicians — sometimes, it’s rumored, even chief ministers of major states — who take their cut and maybe even run sand-mining operations of their own. The McKinsey Global Institute calculated that the hundreds of millions of Indians migrating from villages to cities require up to a billion square yards of new real estate development annually. Current construction, according to one estimate, already draws more than 800 million tons of sand every year, mostly from India’s waterways. Though no reliable numbers are available, all the people I spoke to in India assumed that much of it is taken illegally.

As I came to know Manimala, it became clear that the river had mostly been mined by the villagers themselves. You could see the evidence in many of the new houses nestled among the rubber trees and coconut palms. Some were made of concrete, large and sprawling and brightly colored: pink, neon yellow, fire-engine red. A few had heaps of sand out front to be used for concrete or plastering for new wings and other renovations.

One evening, I sat with Saji P. Thomas, a slender, energetic former sand miner with a small mustache, in front of his new house. He told me he started sand mining around 2002, to raise money for a new business. (He now runs a small cosmetics factory.) It was possible then to mine sand legally, but Thomas, like many others, didn’t bother with hard-to-obtain permits at first; he mined only at night to evade the police. They worked in groups of four or more, he said. Some would pilot the rowboat and the others would dive as deep as 15 feet to fill their baskets with sand. The loads were awkward and heavy. “We’d make a staircase out of tree stumps,” he said. “But the danger was we’d slip off a step and almost choke to death underwater.”

At the river’s edge, another team would load the sand into a truck. Sometimes, Thomas said, the truck driver would get a call that the police were on their way, and they’d scramble to finish loading the truck and flee; any bribes the authorities might demand could cut deep into their margins. “There are policemen who have built beautiful houses thanks to sand mining,” he said. His previous job, at a bank, paid 400 rupees a day, roughly $5. A good night’s work mining sand earned him 2,000 rupees. So Thomas kept at it. “To distract myself, I’d fantasize that I was a businessman in a nice car.”

The work did sound terribly dangerous. But the most striking detail in Thomas’s story was not about the mining itself, but about the attitude of his neighbors who lived at the river’s edge. Back when there was plenty of sand, trucks came day and night to load up at the river. But to get access they usually had to cut across the property of the town’s riverfront homeowners, most of whom would collect a toll of 150 rupees from each truck that passed. Now that sand mining has wiped out the groundwater, those same homeowners have to hire different trucks — tankers — to bring them drinking water, at more than 1,200 rupees a trip. The sand was gone, and gone with it were the river, the groundwater and even the tolls. All that was left was a question, one that haunts river communities all over India: Why would any village so willingly accept such paltry gains for certain catastrophe?

More than half the apartments built during India’s construction boom can be found in the New Delhi metropolitan area. One of the highest concentrations of these apartments is in Greater Noida, a suburb that lies between the two most sacred rivers in Hindu lore: the Yamuna to the west, and the Ganges to the east. Both rivers are heavily mined, and it’s easy to see where all that sand goes.

Greater Noida has come to embody the shiny, walled-off vertical India of the future. Amid seemingly endless colonies of newly constructed concrete apartment towers, you can enjoy one of India’s finest golf courses and the country’s only Formula One racetrack, as well as a shopping mall that tries to simulate the city of Venice, complete with gondola rides. Among all the well-guarded high-rise clusters, you can still find the remnants of 124 agricultural villages, which 40 years ago were the only habitation in this place: fragmented fields of mustard and wheat, an odd absent acre picked over by a stumbling herd of goats.

Greater Noida was created in 1991 and is administered not by a mayor but by a chief executive. The idea was to transform the farmland just outside booming New Delhi into an industrial hub that would attract job-creating factories. (Noida is an acronym for New Okhla Industrial Development Authority.) Instead, according to local accounts, the authority sold much of the farmland to private developers for 10 or 30 or even several hundred times what they’d paid the original landowning farmer, and Greater Noida became a reservoir for population overflow from New Delhi. The few industries that did come to Greater Noida rarely hired villagers, preferring instead to bus in better-educated workers from other northern cities. Young jobless village men and migrant laborers turned to petty theft, and Greater Noida saw a wave of muggings and carjackings. Some high-rise residents began to treat their complexes as fortresses, driving out only in the daylight.

Naushad Khan, a 37-year-old former sugar-cane farmer with a boyish smile and a boxer’s physique, seized the opportunity presented by the construction boom to enter the entrepreneurial class. As a teenager, he joined and then expanded his elder brother’s digging company, excavating the foundations for new developments and selling the sand they removed. Now, capital in hand, he was starting his own development, an “eco-friendly” luxury condo tower, on the outskirts of Greater Noida. He had turned sand into money, and now he would turn that money right back into something concrete.

Construction, Khan told me, was an extremely competitive business, which he counted as a blessing. “If you want to succeed, then there should be a good, strong rival against you,” he said when we met at his freshly built office. I asked him if sand mining was ever dangerous. By way of answering, he asked an assistant to fetch his pistol. He set it on the table between us as a kind of conversation piece, next to the tea and cookies. It was Indian-made, long-barreled and hefty-looking. He laughed when I asked if he’d ever had to use it. “Many times,” he said. “Tens of times. Scores of times.” He was quick to add a clarification: He’d fired it only for safety, shooting in the air to ward off suspicious people or if the atmosphere was wrong.

That sort of thing.

The last time I saw Khan was at an overwhelmingly well catered wedding reception he hosted for his nephew inside a hangar-size tent. Parked inside the entryway was an immaculate white Audi Q5, presumably a wedding gift. Greater Noida had worked out well for him, Khan acknowledged. He always took sand legally, he said — he was quite insistent on this point — and now he could help provide a comfortable standard of living for an extended family with over 40 members. Amid the festivities, Khan seemed almost giddy with pride for all he had achieved.

One afternoon I took a drive around Greater Noida with a local farmer named Vikrant Tongad, a sly young man with pointy shoes and a thick pompadour who wanted to show me what had happened to the surrounding rivers. For long stretches of our trip, the only people we saw on the roadside were hawkers waving glossy brochures, trying to lure us to open houses. Between the high rises, dust storms whipped the empty fields. Every billboard we passed was an advertisement for a high-end condominium. One featured, alongside the usual list of perks, a flirty photograph of the Bollywood star Deepika Padukone and an unsurpassable slogan: “Nothing Left to Desire.”

Why don’t Indians just shift to other construction materials? In part it’s because concrete is cheap, strong, easy to use and highly versatile. In part it’s cultural: Building a house out of brawny concrete has come to be viewed by many as a matter of prestige. “They feel that beauty is a beast,” the architect B.R. Ajit told me ruefully. The law encourages this tendency. One environmental lawyer explained to me that the Indian building code recognizes a house as a house only if it’s made from specific heavy materials — concrete included. “If you use that criterion,” he said, “the president’s house is not a house.”

Now, as we drove past mile after mile of unfinished apartment towers, a city for ghosts, all I could think about was the tons of river sand locked within. Many of the condos in Greater Noida are bought as investments by Indians living abroad, and sometimes buildings are left empty by owners who have no intention of taking residence. In other cases the developers run out of money midconstruction or are halted by legal disputes, leaving bare concrete shells for years on end. Some buyers who actually do intend to move in are left waiting helplessly for the keys to apartments they paid for long ago.

Finally we arrived at the floodplains of the Yamuna. We stopped to survey the deep pits and fresh tracks where sand miners with earthmovers had been working under cover of night. Similar pits dotted the land as far as the horizon, some large enough, I later learned, that children used them as cricket grounds. The mining has shifted the course of the Yamuna, destroyed animal habitats, damaged crops and threatened the purity of local groundwater, and it may be causing buildings to sink. But it’s especially difficult to single out the effects of sand mining on the Yamuna because the river is troubled in so many different ways. The truth is that with the exception of a couple of months during monsoon season, by the time the Yamuna River reaches Greater Noida, there is no river at all.

Tongad walked me down to the banks, and we saw something that looked like a river: There was liquid in the riverbed, and it flowed in a particular direction. But it’s an illusion. Less than 150 miles north, nearly every drop of the Yamuna is rerouted to provide water for the city. The liquid that flows in the Yamuna riverbed alongside Greater Noida consists of every variety of urban waste: factory refuse, slaughterhouse runoff, sewage. If you walk right up to the water, what you’ll find are swirls of oil, clouds of white chemical foam, animal parts, floating turds. I never spent time next to the Yamuna without getting a headache for the rest of the day. And yet old traditions die hard. I saw the Hindu faithful still dipping their idols into this supposedly sacred sludge. Families still cremate their dead on the ghats along the fetid banks.

One afternoon I took a drive around Greater Noida with a local farmer named Vikrant Tongad, a sly young man with pointy shoes and a thick pompadour who wanted to show me what had happened to the surrounding rivers. For long stretches of our trip, the only people we saw on the roadside were hawkers waving glossy brochures, trying to lure us to open houses. Between the high rises, dust storms whipped the empty fields. Every billboard we passed was an advertisement for a high-end condominium. One featured, alongside the usual list of perks, a flirty photograph of the Bollywood star Deepika Padukone and an unsurpassable slogan: “Nothing Left to Desire.”

Why don’t Indians just shift to other construction materials? In part it’s because concrete is cheap, strong, easy to use and highly versatile. In part it’s cultural: Building a house out of brawny concrete has come to be viewed by many as a matter of prestige. “They feel that beauty is a beast,” the architect B.R. Ajit told me ruefully. The law encourages this tendency. One environmental lawyer explained to me that the Indian building code recognizes a house as a house only if it’s made from specific heavy materials — concrete included. “If you use that criterion,” he said, “the president’s house is not a house.”

Now, as we drove past mile after mile of unfinished apartment towers, a city for ghosts, all I could think about was the tons of river sand locked within. Many of the condos in Greater Noida are bought as investments by Indians living abroad, and sometimes buildings are left empty by owners who have no intention of taking residence. In other cases the developers run out of money midconstruction or are halted by legal disputes, leaving bare concrete shells for years on end. Some buyers who actually do intend to move in are left waiting helplessly for the keys to apartments they paid for long ago.

Finally we arrived at the floodplains of the Yamuna. We stopped to survey the deep pits and fresh tracks where sand miners with earthmovers had been working under cover of night. Similar pits dotted the land as far as the horizon, some large enough, I later learned, that children used them as cricket grounds. The mining has shifted the course of the Yamuna, destroyed animal habitats, damaged crops and threatened the purity of local groundwater, and it may be causing buildings to sink. But it’s especially difficult to single out the effects of sand mining on the Yamuna because the river is troubled in so many different ways. The truth is that with the exception of a couple of months during monsoon season, by the time the Yamuna River reaches Greater Noida, there is no river at all.

Tongad walked me down to the banks, and we saw something that looked like a river: There was liquid in the riverbed, and it flowed in a particular direction. But it’s an illusion. Less than 150 miles north, nearly every drop of the Yamuna is rerouted to provide water for the city. The liquid that flows in the Yamuna riverbed alongside Greater Noida consists of every variety of urban waste: factory refuse, slaughterhouse runoff, sewage. If you walk right up to the water, what you’ll find are swirls of oil, clouds of white chemical foam, animal parts, floating turds. I never spent time next to the Yamuna without getting a headache for the rest of the day. And yet old traditions die hard. I saw the Hindu faithful still dipping their idols into this supposedly sacred sludge. Families still cremate their dead on the ghats along the fetid banks.

Our last stop was a shop that appeared to sell cellphone chargers. In fact, the chargers were a ruse; it was really an unlicensed wine shop. In the back room Tongad introduced me to a sand miner named Jagbir Nagar. He was a thin man, around 60, dressed head to toe in white, and with him were several young men from the village, all seated around a hookah.

Nagar is the sarpanch, or head man, of his village in Greater Noida. He also shares an earthmover with a team of five or six others that they use to mine sand from the floodplains. Together, he said, they can take as many as 100 truckloads of sand a night, some of which is used for local projects and the rest of which is mostly picked up by truckers from the desert state of Rajasthan. (If that sounds like sending coals to Newcastle, it’s not; desert sand is too fine and rounded to make strong concrete.)

I asked Nagar if he was worried that the mining might adversely affect the quality of the local water. It was a question I had an immediate interest in, given that we were at that moment drinking glasses of what they’d told me was unfiltered local groundwater. Nagar grunted in the negative and looked like at me as if I were an idiot.

Tongad answered for him. “They’re happy with mining,” he said. “Groundwater depletes: No problem. River is dying: No problem.”

“People are selfish,” a younger man agreed.

“The miners say, We dig a hole, and the next year the river comes and fills it again,” Tongad said. “So what’s the problem?”

I had often encountered this attitude in India. Everything is rigged, the argument goes. How can you expect us not to seize whatever meager leavings we can? It’s not as if we’re carjackers — we’re taking sand! From what used to be our own land! It’s difficult to convince people who for generations have taken local sand for granted that, like passenger pigeons a century ago, something they had thought of as infinite is now dangerously finite. It’s difficult to tell people who have always been able to take sand according to their needs, and who now have seen outsiders come in and derive great profit from it, that sand is in fact a critical natural resource that needs to be protected.

“If the police come, do you fight them?” I asked Nagar.

“If there are a lot of police and only a few men, then we run,” he said. “If the police are few and the men are many, then we get into it with them. We fire shot for shot.”

Nagendra Prasad Singh, the district magistrate in charge of enforcing the law in Greater Noida, is a serious man, built like a pillar, with a push-broom mustache and a slight twitch in his right eye. He came from a farming family but earned a graduate degree in physics before entering the Civil Service. His previous posting was in Shamli district, which also lies on the Yamuna, and it was said that he put a complete stop to sand mining there — the first I had heard of any such success anywhere in India.

When he came to the New Delhi suburbs, Singh quickly began running night raids on illegal miners, seizing dozens of truckloads of sand and imposing fines of tens of millions of rupees on the violators. At his office in Noida’s Sector 27, I asked him if the raids had posed any danger for him. “Have you read the Gita?” he asked. “The soul never dies. The energy may change shape, but the soul never dies. With that kind of confidence, I don’t think anybody can shoot us.”

Singh said he had been fighting the sand mafia since 1999, when he was the city magistrate in Haridwar, a pilgrimage town that marks the spot where the Ganges emerges from the Himalayas. There he learned all about the sand trade from a tiny but stubborn community of activist Hindu monks called Matri Sadan. Their leader, a dreadlocked former chemistry teacher now called Swami Shivanand, moved to Haridwar in 1997 to devote his life to praise of the Ganges, but his prayers were disrupted by the incessant work of the sand mafia. The swami’s objections to mining in the Ganges were largely religious, but as a chemist he was also keenly attuned to the earthly costs.

Together Singh and Swami Shivanand set their sights on a businessman named Ponty Chadha, who ruled the sand trade across the state of Uttar Pradesh. He was also the distributor of many Bollywood blockbusters, a real estate magnate, the state’s main liquor baron and a philanthropist focused on special-needs children and had close ties to the chief minister of Uttar Pradesh. Singh and the monks managed to get Chadha’s sand-mining license revoked, which left the trade to the motley assortment of smaller players that dominates it to this day. (Chadha died in 2012, when a real estate dispute with his brother Hardeep escalated into a gunfight.)

Singh eventually realized that law enforcement alone would not be enough to stop the theft; arresting the leaders of many smaller mafias may be an even greater challenge than ousting a big gangster like Chadha. Now his focus is on harm reduction. Central to his argument is an exasperating fact: There really is enough sand in the rivers and offshore to meet India’s demand for concrete and plaster, at least according to many conservationists. In some cases sand mining can even be beneficial. An oversilted river — a river with too much sand — is also prone to flooding and changing course, and strategic sand mining can help keep it on track. The catastrophes occur only when specific, vulnerable stretches of river are overmined. There’d be no problem if the construction industry mined only from river sites with a carefully identified surplus of sand.

Existing laws on sand mining should be adequate to regulate the trade, but as is so often the case in India, the laws are toothless. In 2013, for example, India’s National Green Tribunal — a special fast-track court for environmental violations — issued a blanket ban on all river-sand mining without environmental clearance. But according to the environmental lawyer Rahul Choudhary, almost all of the applications are granted clearance. Rejections usually occur only because of incomplete paperwork.

Singh has a different approach. The first step, he said, is to secure genuine environmental clearances, based on field studies. Next, offer leases to mine on those cleared sites by public auction, with strict parameters on the dimensions of the lease and the depth of excavation permitted. There is no honor system; surveyors must map the site and then fix posts into the riverbed to physically block the leaseholders from mining beyond the designated zone. When the mining begins, the magistrate and his officials make frequent unannounced inspections of the sites and weekly video recordings to monitor the depth of sand. The magistrate must also hold regular meetings with townspeople in mafia-prone areas. “Most important,” Singh said, “is the awareness of the people who are living along the river, so that they may feel like a watchdog, that the river’s interest is their own interest.”

It sounded like a smart plan. But it also seemed to rely almost completely on the presence of extraordinarily vigilant magistrates. If a district was unlucky enough to be assigned a corrupt magistrate, or merely one whose interest in sand mining were less intense than Singh’s, the system would fall apart. It was going to be a difficult model to replicate.

I asked Singh if he knew any other magistrates who were taking a similar approach. “I am not in contact with anybody who is doing this,” he said.

Criminality and graft have come to be seen as such incontrovertible facts of life in India that, in my experience, people seldom mind discussing them openly. When I met a young real estate agent named Girish Kasana in the office of his father’s construction company, for instance, he brought a particularly well-informed perspective on the realities of how Indian cities are built. “Everything is corrupt,” he said.

Construction is the business where criminals have the best opportunities to launder the most money, he explained, and a cascade of bribes go “to the topmost levels in the government.” Kasana grabbed a copy of a construction tender on his father’s desk and started furiously scribbling numbers on the back. To get a typical government construction commission, he explained, you pay 6 percent in bribes up front. Then, after the first payment, you pay another 7 percent, half of which goes to the state’s top politicians. The development authority’s junior engineer gets 3 percent. The associate engineer gets 1.5 percent. The senior manager gets 3 percent, and so on — until the total reached an astonishing 30 percent. “When this is given, then almost anyone can be managed,” Kasana said. “This is the system. This is India.”

“The thing to do is to get a job in the authority,” my translator joked.

“This can also be done,” Kasana said. To get a job as a junior engineer, he said, requires a bribe of 10 million rupees.

As I talked to developers about sand mining, I often found myself sympathetic to their explanations. The existing system practically forces anyone who wants to build something to collude in the destruction of the rivers. The sand trade is furthermore sustained by a devilishly inbuilt chain of plausible deniability. Unlike most other categories of mining, where large companies dominate the business, sand mining is executed by an endless array of small, independent, often temporary players, largely working at night and in secret. And each step of the line of production is separated from the rest: The sand moves from diggers to truckers to dealers to builders with each link in the chain knowing as little as possible about where the sand they’re buying comes from or who mines it — for obvious reasons, they don’t want to know. Nameable sand dons like Ponty Chadha are rare. The fragmentation and anonymity of the chain is exactly what allows it to continue with so much impunity.

“I believe in the power of the people,” Singh told me on my last day in the New Delhi suburbs, just before we got into his pristine white Hindustan Ambassador to go talk to the villagers of Jhatta about sand mining. “To stop an illegal thing, first show your intention. If you are a man of integrity, you have to show it, because people never believe you at first. But gradually, gradually, if you succeed in showing them that you have no personal motive, that you are just trying to motivate them in the larger public interest, that you are just doing your duty, then the people become convinced. That’s my experience.”

In Jhatta, more than 100 villagers, all men, all wearing their best starched whites, gathered in a courtyard next to the village temple to hear Singh’s speech. They had covered their chairs with silky white slipcovers and presented the magistrate with a bursting bouquet of flowers. His oration on sand mining drew on every appeal at his disposal, rhapsodizing about rivers, spelling out the science, quoting scripture. When he finished, his deputy led the villagers in a chant: “Illegal mining: We won’t do it, and we won’t let it happen!” (It’s catchier in Hindi.)

It was a compelling speech, and I could see how Singh might convince the villagers of Jhatta, person by person, moment by moment. But of course his adversary is not each villager one by one. It is the systems and values many of us hold in common — the competitive lure of conspicuous consumption, the insatiable engine of development, the universal corruption that fuels it — all of them obstructing any effort to reckon with environmental catastrophe, which has a confounding tendency to manifest itself long after the original gains have accrued.

After the speech, a farmer named Sohan Pal Singh approached me to say that the district magistrate was making too much of sand mining. “For us, it’s a normal activity,” he said. “It’s not such a big deal.” He wanted to show me something outside: Piled against the wall of the courtyard where the meeting was just held was a heap of sand that he himself had helped mine.

I asked him if he planned to stop mining after hearing what the district magistrate had to say.

He scowled.

“If the district magistrate told me to stop wearing clothes,” he asked, “should I take off my shirt?”


Rollo Romig is a journalist based in New York. He last wrote for the magazine about the Indian politician Jayalalithaa Jayaram.


China’s Gradualist Reform Approach Reaching Bitter End

China’s step-by-step strategy of creating change is increasingly undermined by instantaneous market reactions

By Nathaniel Taplin

China's Premier Li Keqiang on Sunday announced a more modest economic growth target of ‘around 6.5%’. Photo: jason lee/Reuters


Reform is what makes China tick for investors. The more signs that Beijing is taking on tough problems, the more investors cling to the idea that the China miracle has room to run.

They are watching closely for signs of change at this week’s annual meeting of China’s National People’s Congress, when the country’s leaders map out the latest economic course. A more modest economic growth target of “around 6.5%” unveiled Sunday by premier Li Keqiang is another baby step toward acknowledging the need for change. But there is dispiriting news on the reform front: China’s gradualist approach to change may have run its course.

As China’s financial markets have grown larger and more complex, incremental reform has gotten tougher because lightning-fast market reactions accelerate the impact of reformers’ decisions and create a strong temptation to backpedal, according to a National Bureau of Economic Research paper by economists Markus Brunnermeier,Michael Sockin and Wei Xiong. The authors point to the botched rollout of stock-market “circuit breakers” in January 2016 as an illustration of how financial markets amplify and accelerate the impact of experimental policies, often causing reforms to backtrack and lose credibility.

China’s struggle to reduce industrial overcapacity is another example. In years past, steel and coal capacity cuts were difficult, but the impact unfolded slowly over time. Yet since coal and iron ore futures were introduced in 2013, when curbs are announced, markets react instantly.

A recent coal price fiasco is an example of this dynamic at work. Tough curbs on coal output were announced in April 2016 to try to curb overcapacity. But when import and electricity data began hinting at higher demand last fall, coal and iron-ore futures flew through the roof. Coking coal futures rose nearly 200% from late September to early December.

As prices moved higher, regulators rapidly watered down output restrictions. Prices have now fallen back—but in the future, capacity curbs may prove difficult to execute because miners are unlikely to believe they will last, and speculators will push up prices again.

Another area of struggle is ballooning corporate and local government debt. In the past, financial problems at important state firms could be handled behind closed doors by banks and local governments, with Beijing coordinating as needed. Changes in debt policy would take time to impact the real economy.

But now, debt markets react instantly—as they did in April 2016 when the central bank used tough language on cutting off “zombie enterprises.” After several weeks of hair-raising market volatility, the central banked stepped in with massive liquidity injections and tossed bonds back into a bull market. That avoided a major blow-up—but the message that pressure to deleverage would be temporary was reinforced.

Deng Xiaoping famously abided by the reform philosophy of “crossing the river by touching the stones.” These days, the river is running too fast and too deep for small steps.


The Afghanistan-Pakistan Fault Line

The U.S. will be engaged in military and intelligence operations at the Afghan-Pakistani border for many years.

Kamran Bokhari

Summary
At a time when the world is focused on repairing the Islamic State’s damage to the Iraq-Syria border, another key international boundary between Afghanistan and Pakistan faces increasing pressure from jihadism. In fact, the Afghanistan-Pakistan frontier is where transnational jihadism took root nearly two generations ago. It is also the battlespace for the longest war in American history, which started in 2001. Though it has been overshadowed by events in the Middle East since the 2011 uprisings, the jihadist war in Southwest Asia is likely to preoccupy the United States for many years to come.
  • Located at the crossroads of the Middle East, Central Asia and South Asia, Afghanistan has historically been a conduit for different powers pushing into different directions.
  • The jihadist conflict on the Afghan-Pakistani border is just the latest form of warfare in an area that has experienced conflict for centuries.
  • In the here and now, conflict in Afghanistan is once again spreading eastwards and destabilizing Pakistan.
  • While the Afghan-Pakistani border will not go the way of the Syrian-Iraqi frontier, Pakistan will deal with war on its western flank for many years to come.
 
Introduction

On March 2, Pakistan’s Cabinet approved a plan to integrate the Federally Administered Tribal Areas into the adjacent province of Khyber Pakhtunkhwa – a move that will end the autonomous status of the region that straddles the border with Afghanistan and has been a global hub of transnational jihadist activity. Meanwhile, official trade between Afghanistan and Pakistan was suspended on Feb. 15 when Islamabad closed its three main border crossings after a surge in tensions with Kabul. Unrelated to the border closure, Pakistani troops have been shelling what they claim are jihadist sanctuaries on the Afghan side of the border. Furthermore, Pakistan’s newly appointed army chief, Gen. Qamar Javed Bajwa, threatened that his forces could cross the border and attack the Afghan hideouts of Taliban rebel factions responsible for the recent surge in terrorist violence after a decline in such attacks over the last two years. In February, at least 100 Pakistanis were killed in bombings across Pakistan; one of the bombings occurred at a popular shrine located in a rural area of the southeastern province of Sindh. Such incidents are rare in this area, as most attacks take place closer to the Afghanistan border.
AFGHANISTAN-UNREST-BORDER-PAKISTAN
Afghan women in a cart enter Afghanistan from Pakistan at the border crossing in Torkham, in Nangarhar province on June 18, 2016. A major Afghan-Pakistan border crossing reopened that day after it was closed for several days following deadly clashes between the two countries after the construction of a gate on the Pakistani side to control cross-border movement, officials said. NOORULLAH SHIRZADA/AFP/Getty Images


Formation of Southwest Asian Borderlands

The roots of the contemporary Afghanistan-Pakistan jihadist conflict in the cross-border region date to at least the 10th century. The historical caliphate that was presided over by the Abbasids declined in the late 9th century, enabling the rise of multiple Persianate, Turkic and Mongolian dynastic dominions that controlled what we now call Afghanistan. One such Turkic polity was known as the Ghaznavid dynasty (977-1186); during its reign, Afghanistan became a springboard for these Muslim forces to invade India.

For the next eight centuries, successive Muslim dynasties from Central Asia, which all had a foothold in Afghanistan, invaded and ruled India (which included current Pakistani territory). The most notable of these dynasties was the Mughal Empire (1526-1857). This process continued until the decline of the Mughals in the 18th century. By 1857, all of Southwest Asia was either under British influence or ruled directly by the British. However, the area had been in a state of flux long before British borders prevented territories from frequently shifting hands.

The current 1,510-mile border between Afghanistan and Pakistan, called the Durand Line, was established by Britain during the heyday of British colonial rule. It was named after Sir Henry Mortimer Durand, who concluded an agreement with Afghanistan’s emir, Abdur Rahman Khan, in 1893. Designed to delineate the western periphery of British-ruled India, the Durand Line rendered Afghanistan a buffer state between British-controlled South Asia and Russian-controlled Central Asia. The Durand Line, adjusted slightly in accordance with a 1919 treaty, has been the de facto Afghan-Pakistani border since 1947, when the British partitioned the South Asian subcontinent into the two sovereign nation-states of India and Pakistan.

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Rise of Jihadism

Afghanistan refuses to officially recognize the Durand Line as its international border with Pakistan because it effectively divides ethnic Pashtuns into Afghan and Pakistani citizens and removes territory that Afghans claim ownership over. During the days of British rule, the Afghans were in no position to challenge the Durand Line. However, after Britain’s departure, King Mohammad Zahir Shah’s monarchical regime in Afghanistan supported Pashtun separatism in Pakistan. To counter this separatist Pashtunistan movement and the ethnic nationalism that was associated with it, Pakistan fortified its national identity by using Islam. Pakistan also began supporting Afghan Islamist groups several years prior to the1978 coup that allowed the communists to come to power in Afghanistan, and the Soviet military sent troops to prop up the communist regime the following year.

Over the course of the next decade, Pakistan served as the launchpad for the U.S.-led international effort to fight Soviet troops and their allied Afghan communist government. Radical Islamists from Arab countries and the wider Muslim world had to travel through Pakistan before arriving in Afghanistan to fight against the communists. For the first time, Islamists of different national, ethnic and linguistic backgrounds operated in a singular battlespace. In this way, the landlocked Southwest Asian country became the crucible in which transnational jihadism took shape.

Moscow was forced to withdraw its troops from Afghanistan in 1989, and the Soviet Union imploded within two years. These developments, along with a decade of battlefield experience, had a major psychological impact, especially on the international veterans of the Afghan war. It emboldened both the Afghan and foreign fighters to feel that they could serve as a global Muslim vanguard. The foreign fighters had come to Afghanistan to help fellow Muslims liberate their lands from the invading Russians but ended up subscribing to the view that an Islamic political order could be created through armed insurrection.

The Afghan experience thus reinforced the beliefs of those who already felt that jihad was the only way to establish Islamic governance. In addition, it rendered these beliefs, which until then had been organized along national lines, into a transnational movement under the banner of al-Qaida. Meanwhile, Afghanistan continued to descend into chaos as the Afghan Islamist insurgents, united in their fight against the communists, immediately turned their guns on each other when Afghanistan’s Marxist regime was toppled in 1992. The resulting intra-Islamist civil war, which ensued for the next four years, was critical because the anarchy created large swathes of ungoverned spaces. This allowed al-Qaida to establish its global headquarters in Afghanistan.

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The Emergence of the ‘AfPak’ Battlespace

The Taliban emerged from southern Afghanistan’s Pashtun population as a new faction, and many of its members had previously fought the communists as members of other jihadist groups. When the Afghan Taliban took Kabul in 1996, the movement eclipsed the factions that had successfully fought against the Soviets. While it adhered to nationalist jihadism, the Afghan Taliban regime provided al-Qaida-led transnational jihadists a major platform from which to operate and launch the 9/11 attacks. Pakistan had thrown its lot behind the Taliban as early as 1994, when it became clear that the organization was emerging as the dominant force in the Afghan Civil War. However, the Pakistanis ignored al-Qaida, not realizing that the transnational jihadist entity was competing with Islamabad when it came to influence over the Taliban.

The 9/11 attacks created a major crisis for Pakistan whereby Islamabad was forced to align with the United States against its Afghan proxy. When the Taliban regime was toppled, decades of Pakistan’s efforts to install a friendly regime in its western neighbor crashed down. Islamabad’s decision to align with Washington led to the rise of a Taliban rebel movement within its borders. During the early 2000s, an anti-Pakistan jihadist insurgency took shape in the tribal areas from which Pakistan had supported the anti-Soviet Islamist insurgents and, later on, the Afghan Taliban.

It was this outcome that forced Pakistan to try and balance its need to support the U.S.-led war against jihadism with its need to allow the Afghan Taliban to operate from its soil. From Pakistan’s point of view, the Americans have the option of packing up and leaving. The Pakistanis, however, cannot escape the geography that forces them to deal with fallout from Afghanistan. However, the balancing act did not work.

By December 2007, Pakistani military, intelligence and police forces had become a key target of a vicious insurgency planned by a well-organized domestic Taliban movement that has since claimed as many as 70,000 lives. The rise of this Taliban movement was aided by al-Qaida, which relocated to Pakistan after the destruction of its Afghanistan facilities in late 2001. While the Afghan Taliban distanced themselves from al-Qaida, the Pakistani Taliban fully subscribed to al-Qaida’s transnational outlook. As a result, the jihadist war spilled from Afghanistan into Pakistan and created what has come to be known as the “AfPak” battlespace.

Over the next two years, Pakistan lost control of not only the tribal badlands along its northwestern border with Afghanistan but also many districts of the Khyber Pakhtunkhwa province. In addition, jihadists established roots in major urban centers across the country and in the core province of Punjab. Furthermore, growing religious ultraconservatism has provided Pakistani jihadists with an enabling environment. Further complicating matters, the Pakistani state has been unwilling or unable to deny sanctuary to Afghan Taliban and anti-India militants; in other words, Pakistan lacks either the will or ability to crack down on these groups.

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The Pakistani Position

Since 2009, the Pakistani state has gradually regained the upper hand in the physical war against jihadists. That year, it retook the Swat district, which had become a de facto Taliban emirate deep inside the country. Islamabad also launched a major offensive in Pakistan’s northwestern tribal areas, with the exception of North Waziristan, which is home to not only anti-Pakistan jihadis and their al-Qaida allies but also the Haqqani faction of the Afghan Taliban movement. It took another five years for the Pakistanis to mount an offensive in North Waziristan in June 2014, and the offensive gained further momentum after the December 2014 attack on an army school where 132 children were gunned down.

The frequency of attacks in Pakistan has considerably declined over the past two years, especially large-scale attacks. However, the recent wave suggests that the jihadist rebels retained their capabilities during the crackdown by going underground. During this time period, the Islamic State has set up shop both in-country and in neighboring Afghanistan. After fighting the Taliban insurgency and training Afghan forces to assume this role on its departure, NATO had withdrawn a significant portion of its Western troops by 2014. After the NATO drawdown, the Taliban insurgency gained considerable strength. The pullout of western forces, coupled with the Pakistani offensive on its side of the border, has led jihadis of various stripes to regroup in eastern Afghanistan. It is thus ironic that anti-Pakistan jihadis have found safe havens in Afghanistan while Afghan Taliban continue to enjoy safe haven in Pakistan.

Relations between the Afghan and Pakistani states have not been good since the post-Taliban regime was founded in 2002. However, infighting among various anti-Taliban factions within the Afghan state has created a situation where Kabul is becoming increasingly incoherent and unable to control its territory. This has led Afghanistan to increase its criticism of Pakistan for not delivering on its promise to crack down on the Afghan Taliban. Conversely, Islamabad accuses Kabul of allowing Pakistani Taliban to operate from Afghan soil.

Both countries struggle with their respective jihadist insurgencies, and very little cross-border cooperation takes place between Afghanistan and Pakistan. Instead, the Kabul-Islamabad clash works to the jihadis’ advantage, especially those who would like to replicate the conditions that exist on the Syrian-Iraqi border at the Afghan-Pakistani frontier. However, transnational jihadis are unlikely to realize this desire because Pakistan is a much stronger state than both Syria and Iraq, and the core of the Afghan Taliban remain a nationalist force focused on gaining power in the country.
Conclusion: No End in Sight

The international strategy for managing the war at the Afghanistan-Pakistan border has revolved around the notion that the Afghan Taliban needs to be negotiated with. For the longest time, Pakistan was seen as the one state actor that could bring the Afghan Taliban to the negotiation table and steer it toward a settlement. However, Islamabad has lost its influence over the group over the last few years, so this has not happened. The Afghan Taliban has the upper hand over the Afghan government on the battlefield, which serves as a disincentive for the group to seriously enter into talks.

afghanistan-districts
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Additionally, the Afghan Taliban is still very much an insurgent movement. As a military organization with very little political experience, it has not developed into a movement that could be incorporated into the existing political setup, and the war cannot be brought to an end until that happens. Furthermore, the political mainstream itself is virtually non-existent, and it therefore becomes difficult to integrate the Taliban. The Afghan Taliban seeks to replace the current dispensation with one that it can dominate, so it continues to push for a significant change to the current setup.
The Taliban are used to an autocratic form of governance, which was the setup they used while in power from 1996 to 2001. Because of this, they cannot function as a party in a democratic system and thus they push for the restoration of their old emirate. There is also a historical precedent for this type of system, which was in use from the 18th through the 20th centuries. The fate of the current Afghan polity remains unclear at best. While the Afghan Taliban’s ambitions remain limited to Afghanistan, its ideology overlaps with those jihadis who seek transnational caliphates. This explains the linkages between the various jihadist groups in Afghanistan, Pakistan and beyond.
Another problem is that Afghanistan and Pakistan are both Islamic republics. Put differently, the national identities of these neighboring states are exploited by their respective jihadist rebels, who claim ownership over political Islam and exploit the public sentiment that views the governments as insincere to religious ideals. Since it is unlikely that the ideological conflict over the role of religion in politics will be resolved anytime soon, the physical war is also unlikely to end in the near future. Consequently, the United States will be engaged in military and intelligence operations at the Afghan-Pakistani border for many years to come.