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A Whole New World


The dollar and crude should offer good macro leadership today!


Good morning and welcome back to reality t.v. The Minx continued her upside assault last week as traders surrendered to the belief that a quick war would end the tyranny of the Ursine Empire. As the bombs fell over Baghdad, the bears scampered for cover and drove their investment vehicles higher in search of safe ground. General Hoofmo seemed in complete control as his troops amassed on the bull market border with hopes of a quick fix. While defections have clearly thinned the ranks of Boo's bandits, the fearless furball vowed to revenge the bovine beating. "You may have won the battle," he proclaimed as he fled the fury, "but the war is far from over."

While this column is predicated on the financial markets and is not designed to offer political opinion, it's sometimes necessary to straddle that line when assessing risk. I admittedly have mixed emotions as I watch the events unfold overseas but I am resolute in two beliefs--I support the rooting out of terrorism before it can again take innocent lives and I want to see our troops come home to their families as soon as possible. I don't have the answer to how this can best be achieved but as a risk manager and human being, I am wary of the lurking ramifications of our current assault.

The eventual and inevitable victory in Iraq will surely rid the world of an evil dictator but simultaneously open a Pandora's box of potential problems. We're clearly the most powerful country in the world--that's not the issue--but a U.S led presence in the heart of the Middle East is no easy task. The removal of Saddam Hussein will create a power vacuum in a region where oil and religious affiliations are serious matters. With political tensions already frayed and the world communities clearly divided, there is a very defined margin for error.

We've spoken at length about the inability of the U.N Security Counsel to find a common ground and the recent rally has seemingly made that issue a moot point. I would caution, however, against belittling the fact that we've acted against the wishes of Russia, China, Germany, France and many others. As I said, this isn't an indictment or endorsement of our actions and my intent isn't to spur debate regarding the legitimacy of this war. I am simply "looking through" the other side of the glass and wondering if the geopolitical and economic developments are, in fact, bullish.

These tough questions are admittedly big picture concerns and may not "matter" to the recent near term momentum. However, when juxtaposing these risks against the current environment, they should (at the very least) make you stop and think. The historical metrics that form the traditional foundation of a bull market are at far from compelling--valuations are high, mutual fund cash levels are low and sentiment remains hopeful. While the possibility exists that we've entered a bullish phase within the context of a bear cycle, we must remain conscious of the considerable caveats that litter the landscape.

My goal isn't to cloud your judgment or project a bias, it's simply to offer insight that provides value at some level. In a perfect utopia, everyone would coexist peacefully, businesses would prosper and we'd all be happy. While that remains a noble aspiration, the painful truth is that we're a long way from realizing that ideal. What we can (and must) do is contribute at some level to the betterment of society while appreciating the reality that we live in an imperfect world. By doing our part and playing it smart, we just may find our way to a better place.

Good luck today and may peace be with you.
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