Sell Any Rally and of Course Happy Valentines Day
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Sell Any Rally and of Course Happy Valentines Day
It seems that the market was totally focused on the Iraq situation today as Hans Blix presented his latest update to the UN this morning. As we have stated previously, we believe that the negative economic fundamentals and excess valuations are the real cause of this major bear market, and that efforts to invest on the basis of various reports and speeches are misguided.
What we do know about the Iraq situation is that the U.S. administration made up its mind some time ago to remove Saddam from leadership of Iraq, and that, due to extremely hot weather, any military move would have to be undertaken by early March. Therefore, we can be fairly certain that if Saddam does not reveal the location or disposition of biological, chemical or nuclear weapons and is not overthrown or in exile, a U.S. led invasion is imminent.
The remaining question is whether the U.S. will invade with or without UN approval. On that question, it is more bullish on a short-term trading basis if UN approval is given than if it is not, but, either way the U.S. seems determined to follow through on its plans.
On this issue we tend to agree with the conventional wisdom that removal of Saddam in one way or another will spark a stock market rally. However, we believe that the rally will not be that much different in magnitude or time than any other rally that has taken place in the three-year bear market, and we would sell into it. First, even removal of Saddam would leave a number of serious geopolitical problems such as global terrorism and dealing with a post-war Iraq. Second, some kind of resolution of the Iraqi problem would force investors to return their attention to the economy, and we don’t think they will like what they find. Unlike many others, we believe that the economic recovery remains anemic, and that a double-dip into another recession is a strong possibility.
Consumer spending is beginning to flag while capital expenditures remain in the doldrums and earnings estimates are steadily being revised downward. The weakness is being caused by the strong headwinds against growth emanating from the bursting bubble of the late 1990s, not from imminent war with Iraq.
By: Marty Weiner - Comstock
What we do know about the Iraq situation is that the U.S. administration made up its mind some time ago to remove Saddam from leadership of Iraq, and that, due to extremely hot weather, any military move would have to be undertaken by early March. Therefore, we can be fairly certain that if Saddam does not reveal the location or disposition of biological, chemical or nuclear weapons and is not overthrown or in exile, a U.S. led invasion is imminent.
The remaining question is whether the U.S. will invade with or without UN approval. On that question, it is more bullish on a short-term trading basis if UN approval is given than if it is not, but, either way the U.S. seems determined to follow through on its plans.
On this issue we tend to agree with the conventional wisdom that removal of Saddam in one way or another will spark a stock market rally. However, we believe that the rally will not be that much different in magnitude or time than any other rally that has taken place in the three-year bear market, and we would sell into it. First, even removal of Saddam would leave a number of serious geopolitical problems such as global terrorism and dealing with a post-war Iraq. Second, some kind of resolution of the Iraqi problem would force investors to return their attention to the economy, and we don’t think they will like what they find. Unlike many others, we believe that the economic recovery remains anemic, and that a double-dip into another recession is a strong possibility.
Consumer spending is beginning to flag while capital expenditures remain in the doldrums and earnings estimates are steadily being revised downward. The weakness is being caused by the strong headwinds against growth emanating from the bursting bubble of the late 1990s, not from imminent war with Iraq.
By: Marty Weiner - Comstock
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