COMING SOON...WAR RALLY

if you expect the stock market to rally when we go to war you are not alone. i have been wrestling with this theory, certainty according to some people, for some time now. more precisely, ever since president bush projected his intention of removing saddam from power, i have been concerned, as i am a bear, that the market will surge upon the commencement of bombing. that was about 4 months ago. and ever since then, all i hear is that as soon as we attack iraq and defeat saddam hussein, the economy will recover from the malaise and the stock market will rally strongly. so far, no war and just lots of talk and bickering between the 'free-world' about how or if we should take-out saddam.

today, the long awaited 2nd resolution was submitted to the u.n. for their consideration. regardless of their repsonse, we are going to invade iraq in the next 2-3 weeks. as a sideshow to our actions, saddam asks for a debate with president bush and says his missles are in compliance. france, germany and russia submitted another plan to continue inspecting and disarming iraq. and our troops continue to amass in the region around iraq planning for the imminent military action. get ready for the rally!

so counter intuitive is the war rally theory that it almost seems ridiculous. why would the market go up in value just as the risks get really serious? the common response is "thats what happened in 1991 when we started military actions in kuwait". my response, "so what"! this is not a matter of pushing an invading country out of a soveriegn country. this is an overthrow of a government and its leader who has done some pretty nasty things in the past. to think that he will just lay down his weapons and go away is niave and foolish. thus, when we invade with overwhelming force, my guess is that saddam will react in some crazy way and blame us for his actions. without full backing of the rest of the world, saddam will think he is justified in his defense/retaliation and we will look like war mongers and suffer very serious casualties to our soldiers and interests in the region or maybe even in the united states.

war rally. NO WAY! maybe some quick pop, but nothing worth investing good money in. in fact, maybe the war will ignite a huge sell-off. like a capitulation crash, where all the mutual fund hold-outs finally realize that their money is lost forever and having liquid cash to live out the rest of their lives is a better idea. thats what i think could be the result. and 1 more thing, since most people are waiting for the rally to come, the market will do what it always does and make most of the people wrong most of the time.

have a grateful day!
larry