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Tough time for discounting


As I sit here and begin writing, there are basically two main thoughts that cross my mind; how to make today's commentary interesting because very little has changed over the past two weeks and, frustration over the debate on Iraq and how it has impacted the global financial markets.

Very little has changed as it pertains to the tape.

What's that you say? With all that is going on in the world, how could I say that very little has changed over the past two weeks? Wasn't I watching the Sunday talk shows as I ran on the treadmill? Indeed I was, and hearing "the experts" debate about what is happening in and out of Iraq reinforced that there continues to be no identifiable resolution to that component of the geo-political uncertainty. Until there is some visible and definable outcome - there is unlikely to be any conviction from the bull or bear camps resulting in a very choppy grinding market.

Throw into the mix Germany and France's desire to not use NATO weapons in any Iraqi attack on Turkey and we get a truly historic situation developing. Even thinking there could be a rift in NATO potentially changes the geo-political landscape in a huge way and further clouds the markets well beyond what happens in Iraq. Oh, and there is this higher Terrorism alert that clearly has an impact on market psychology.

As I said, things are changing every day, yet the confusion and angst ahead of a decision on what to do with Iraq continues to plague the financial markets in the same way. The market remains oversold on a near-term basis, which keeps the aggressive short players at bay - and has yet to reach levels among the majority of indicators that has led to significant rallies, thus keeping the aggressive long players on the sidelines.

No one likes war.

No matter how you slice it, war is not a good thing...but at times it may be a necessary thing. I find the recent news and the reaction to it rather stunning. History has shown time and time again that hope is not a very good strategic thesis. It seems that the world was hoping that Iraq would comply and now has to deal with the fact that they didn't. For example, France and Germany are proposing putting more weapons inspectors and military backup for them into Iraq to increase the effectiveness of the weapons inspectors. Also, magically at the eleventh hour Iraq has "found" some paperwork regarding their chemical and biological projects.

Wasn't UN Resolution 1441 that was voted on unanimously supposed to obtain all information regarding the Iraqi chemical and biological programs three months ago?

The point is that the "hope" didn't happen and the situation got worse. The world leaders and the financial markets now have to deal with some pretty intense waffling. How are investors supposed to act when the playing field keeps changing? If everyone agreed that a material breach of 1441 was going to contain serious consequences, why then doesn't it? My point is not to say whether a war would be good or bad for the market - it is to say that if certain governments were against ANY military option, they shouldn't have agreed to UN resolution 1441.

When there was a unanimous vote in favor of the resolution, it meant there was an identifiable time frame for some level of resolution to the conflict. Now that the timeframe for resolution has rapidly approached and decision time is here, there is total waffling on the part of some. Remember, it isn't the event that has the market spooked; it is the anticipation of the event. Having that anticipation change at the last minute throws the discounting of a possible resolution way off.

Conventional wisdom is that the market should move lower due to lack of interest ahead of any Iraq military action and then rally once it has begun because consumers and businesses will open up their wallets. While that may be true, there are enough moving parts on when the military option may begin that gaming it is impossible and as a result, most traders and investors are likely to remain sidelined even after the conflict begins.
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No positions in stocks mentioned.
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