The Big Picture | Farewell to Arms

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Farewell to Arms

Thursday, April 10, 2003 | 10:09 AM

Farewell to Arms?: Scenes of jubilation in downtown Baghdad as a statue of Saddam tumbled down. Traders were transfixed, watching a seminal moment in history. As Freedom and Capitalism take root in Iraq, the question remains: How long before the head of that Saddam statue is auctioned off on eBay?

The Dow briefly rallied on the tumbling statue footage before tumbling 180 points itself, to close down 100. Why? As 24/7 war coverage recedes, the market starts focusing on other things: The Economy, corporate earnings, hiring and spending. You can forgive investors for wishing the war lasted another 2 weeks - at least long enough to distract from what may be a disappointing earnings season.

The post-war Bullish case will now be put to the test. Mop up operations will continue, with pockets of resistance and sporadic fighting expected. Iraq continues to be dangerous, and we expect more casualties. But with the “heavy lifting” now over, it behooves us to look at the Bull’s contentions:

• The War was distracting CEOs from hiring and spending;
• Consumer confidence was negatively impacted;
• Victory increases the chance a tax cut passes;
• War limited visibility, keeping earnings expectations low;
• The markets initial rally was “looking through” the war -- and seeing an economic recovery on the other side.

This thesis will be verified (or not) over the coming months: Regular increases in hiring and IT spending, consumer confidence spikes, a tax cut goes through, and the GDP ticks up -- these will vindicate the Bulls. Not surprisingly, the Bears make a different case:

• The relief rally was an oversold bounce;
• Earnings remain weak;
• Valuations are still dear;
• More conservative accounting restrains earnings growth;
• Real estate prices remain vulnerable to rate increases;
• Double dip recession.

Either of these cases may be preferable to the frustrating middle ground: markets remain range bound, sporadically rallying and retreating. The bear market ends, but a new bull market remains elusive, perhaps years away.

If the market maintains a new trading range (last Monday’s lows as the bottom), it will be just that: A challenging no- man’s-zone as the base building process continues.

In the land where the dominant direction is sideways, capital preservation and yield are kings.

Random Items:
Laser-guided concrete
French duplicity rules UN out of rebuilding Iraq
Gurus of Technology

Fair and Balanced:
US Military Moves Reporter Geraldo Rivera from Iraq
and
Geraldo Denies Being Kicked Out of Iraq

Quote: “If anyone disagrees with anything I say, I am quite prepared to not only retract it, but also to deny under oath I ever said it.” -Tom Lehrer(no relation to the Iraqi Info Minister)