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The Art of War

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Identify a proactive strategy that allows you to remain adaptive. Follow?

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"War's going on across the sea
Street soldiers killing the elderly
What ever happened to unity?
It's like that, and that that's the way it is"


(Run-DMC)


There are few topics of conversation that are as deep rooted and emotionally charged as September 11th and the war in Iraq. Each of us has personal memories and beliefs--some quite painful--and those typically manifest themselves in different ways. Minyanville isn't a political arena and we have been quite careful to focus our efforts on the financial mechanism. It is with those intentions that I pen this piece.

As we edge through the delicate geopolitical process, it's imperative that we remove emotion from the equation. When we have strong feelings that conflict with what we "see," it clouds the decision making process. And when what we see jibes with how we feel, it tends to embolden us even more. We must remain conscious of both dynamics as we edge ahead, for they'll likely intensify on either side of the curve.

We can't avoid politics as they craft the collective thinking (and policy) which, in turn, dictates market psychology. And we must be aware of the September 11 hearings and the possibility of a toxic impact on the mindset of America. There are a bevy of potential outcomes--and you can assign whatever probability you choose--but we've got to respect them all. Perhaps these debates will linger and morph into another Dallas schoolbook depository quagmire for generations to come. Who knows--I don't--but we must remain aware, if nothing else, that it's there.

With regard to Iraq, Dubya was quite clear that June 30th was his big fat line in the sand. From a trading standpoint, that now sets the clock into a T-minus situation as we edge towards that deadline. This may or may not prove to be an "actionable" date--remember, he stood on an aircraft carrier a year ago and told us the war was over--but in the financial community, the radars have now been calibrated. Once again, this isn't an opinion with regard to the course we've taken, it is simply an attempt to map out a strategy given where we are.

This discussion adopts an increased relevance given the psychological state of the marketplace. Many sentiment measures triggered more robust (read: giddy) readings during this past rally than they did at the height of the first bubble. That can permeate and inflate further (fueled by momentum and liquidity) but it also thins the margin for error. In other words, if everyone believes blue skies await, few folks will be ready should the red rain resume.

These aren't simple times and it's not easy to assimilate political science into the art of trading. There are a litany of issues and a heightened sense of tension when discussing them. And as we approach the coming months (and the November election), you can be sure that the debate--and the anxiety that results from them--will have an impact on the financial markets. That's not necessarily a bad thing as long as we're aware, alert and respectful of the powers that be.

Good luck.


R.P.
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