Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Then and now


Yesterday afternoon, I was a guest on the FOX network and the topic was about the situation in Iraq and how the market is currently, and likely to respond in the event of Saddam stepping aside or an actual war. The general consensus of the other guests was that the whole situation was going to be resolved in a big way to the upside once either event takes place. While I agree there could be a response to the upside, this is a very different situation than 1990-91, any positive response is likely to be more limited than the consensus view and it should be short lived.

While I have my opinions on the economic and military components of the geo-political events in the news, my job is to relate an outlook for the financial markets. I say this is a different situation than the earlier Gulf War because as you know, I believe that the market trades on a news event based upon the way it traded into the news event. In the time leading up to the first Gulf War, there was talk of body bags and "another Vietnam." In addition, public opinion was not enamored with the idea of a Middle East conflict. As a result, stocks were getting blasted going into the event and the market was retesting their October 1990 lows. Despite the obvious action that was coming, Oil prices peaked in September 1990 and dropped from roughly $40/barrel to the high $20's in December. That's right folks oil was dropping going into the actual conflict.

That was then, this is now. At this point, the Dow Jones Industrials have been weak for a few days, but are still up 14% from the October low and oil prices are still rising, not dropping ahead of the obvious conflict coming.

My point is that in the first conflict with Iraq, there was a great deal of shorts that were trapped and forced to cover on the first big up day (the day after the conflict began). At that time, there was no talk of Saddam going into exile ahead of the event. Right now, I don't think everyone is trapped short because as I have argued over recent weeks, one could make a compelling case on both sides and the memory of a huge spike day on the news has urged restraint on those that might be more aggressive short sellers.

Any important low and bounce from it starts not so much with huge buying, but begins with a lack of selling because anyone who wanted to sell had already done so. That isn't the case right now. The market has dropped recently because there is very limited buying interest vs. aggressive sellers that have to "get out ahead of a war that could go badly." It seems the consensus view is that traders and investors should begin to leg in ahead of it in order to get the upside from the "big day."

That type of sentiment doesn't prevent the upside on an event, but mixed trading going into an event could produce much more mixed results than many expect because the aggressive players are not as "trapped" on the short side and may actually be legging into the long side. So what might they do on a market spike given an uncertain outcome to any conflict, other geo-political events, economic uncertainty, above average valuations and blah blah blah blah blah...

My point isn't to be negative - it is to reinforce moderation in expectations. The "buy the first bomb" thesis may not be such a no brainer.

Oh, and by the way, when we talk so much about the impact on the markets, lets not forget the emotional and physical sacrifice of our fine men and women in the armed forces who give so much that we can worry about how to make (or not lose) money on a military conflict. We are truly a blessed nation.

< Previous
  • 1
Next >
I just found myself humming the National Anthem
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos