I have been concerned for quite some time that the tone of headlines around the world could change from a focus on economic issues to political turmoil.  I originally wrote about this in early March as political protests started to gain a critical mass of sorts: see “There Is About To Be A Very Significant Change In Headlines Around The World.”

I usually read The Washington Post because I live in the Greater Washington region, but while I have been spending much of the winter in Florida, I can get the New York Times delivered to my door.  The big benefit of a print edition of a newspaper is that it gives you a quick scan of the news as you eyeball headlines.  If nothing more, people who just read the headlines of the front page, maybe the local section and the business section, won’t get educated but they will get a fairly accurate sense of the rhythm of the world.

The front page of the New York Times today is a further step in the realization of the prospects I feared when writing the article linked above.  The global economic crisis is morphing into a global political crisis.  Today’s front page of The Times looked like this:  A large color photo on the top left corner of “Unrest in the Streets of Bangkok,” showing armed Thai militia massed to deal with violent protests.  The lead story on the top right was “United Militants Threaten Pakistan’s Populous Heart.”  There was also another story about U.S. efforts to initiate talks in Iran, easing demands about their capabilities of producing a nuclear weapon.  It’s not the front page of a paper announcing a political meltdown around the world.  But it is an indication that there is a change in the news headlines that are beginning to change the environment.  Is this a trend?  I think it well could be.  And, if so, the consequences would not be good, especially for those hoping to see an economic recovery.

I think we can see a boomerang effect on the market as the headlines change.  I do not see how a bull rally can possibly make sense at a time of volatile and unpredictable political turmoil around the world.  Will consumers consume when they fear more governments failing?

Thus far, since the beginning of 2009, Iceland, Latvia, Czechoslovakia and Hungary have seen their governments step down (that is not officially what happened in Czechoslovakia – there, the Prime Minister’s own party forced him to leave office so that they could keep their coalition and their cabinet in place and thereby avoid a total political meltdown).  Today, the odds have increased for seeing the Thai government fail, or for seeing the increase in violence as protestors confront their government, which could be worse than a failed government.  The trends are going in both directions: violence and political instability.  OK.  That’s Thailand.  Big deal.  Next.

It is a big deal.  Here’s why.

As Nehginpao Kipgen, political analyst and general secretary of the U.S.-based Kuki International Forum (www.kukiforum.com), noted in his article “Instability in Thailand,” published in the Korean Times, during its meeting just a couple of weeks ago in London, the G20 Summit pledged to help developing nations to revive their ailing economies.  Thailand would have been at or near the front of the line in getting that aid from the World Bank and the IMF, but not now.  The G20 nations are hardly in shape to prop up their own economies but they obviously thought that the need was great enough in poorer nations that they have been willing to give up some of the resources that could have been used to help their own nations’ economy for the sake of the poorer nations.  What happens to those nations when political instability makes that assistance impossible?

Just a few days ago (April 11), the protesters in Thailand forced the cancellation — for the third time since December 2008 – of the summit of the Association of Southeast Asian Nations (ASEAN).  But the protests didn’t ended when the summit leaders left Thailand (even before the summit meetings could get started).  Kipgen makes the point that if these protests continue, there is the prospect of a “precarious split” in the political stability in Thailand.

We should be concerned.  The prospect of another government stepping down is far from good – it would be the fifth this year while others are waiting in the wings.  It will also be far from positive if political uncertainty preempts the ability to provide financial help to poor nations that need them.  There will be more negative headlines and greater momentum in the direction of even more unstable political regimes.  How does a stock market continue to rally in that global environment?  How do consumers get the backbone to help the economy recover?

How can analysts and investors continue to pooh-pooh the situation?  Probably the same way they ignored all the signs of the meltdown in the capital markets last October.  Oh well.  The more things change, the more they stay the same.