Sadam Hussein Threatening Capitalism

By Thom Calandra

Longer war increases market risks Capitalist Broadcast System

The financial world's obsession with war headlines increases the risks of an auditorium-clearing market decline, market strategists say.

"For investors who are long, our analysis of option prices suggests that the downside risks are greater than the upside potential, and the war rally, which has not been fully reversed, only reinforces that," says Stanford University economics professor Eric Zitzewitz. "So in that sense, the stakes are higher."

An analysis of market expectations and financial performance by Zitzewitz and fellow professor Justin Wolfers concludes there is a small chance of an "extremely bad outcome" in the Iraq invasion, one that could wreak havoc on the dollar, the stock market and oil prices.

The almost 4 percent decline in equity indexes earlier this week was an example of "when the very best-case scenario -- a complete walkover victory, with mass surrender and no guerilla warfare after the fact - begins to appear much less likely," Zitzewitz says.

Others are also becoming convinced that financial professionals' ticker-tape obsession with war developments will bode poorly for most investors if Iraq drags on.

"Speed is of the essence," says longtime currency analyst Barbara Rockefeller at Rockefeller Treasury Services in Connecticut. "The news of an uprising in Basra boosted the dollar on the fast-war idea, while setbacks in clearing the harbor and elsewhere (delaying humanitarian deliveries) was dollar-negative."

Rockefeller, who is fast becoming one of the most accurate sentiment indicators for the fluctuations of financial markets in time of war, says, "Nobody is happy about war stories being the prime mover and shaker, but we have no choice. What's emerging is that the dollar rally could fizzle entirely if we don't get the scent of victory, and PDQ."

Put even more bluntly, "To capture or kill Saddam Hussein would lift the dollar, and a lot. For him to simply not be heard from would be paralyzing," she said Wednesday morning. The dollar early Wednesday in New York trading was at a standstill against most currencies. Some down-under currencies, among them the Australian dollar, were forging small gains against the greenback.

Playing the war in skyscraper trading rooms - and on living-room desktop computers - is sure to give most investors a case of portfolio whiplash.

The Senate's decision to reduce President Bush's tax cuts, for example, momentarily took the wind out of the New York Stock Exchange the other day. Dump war news onto the usual pile of economic headlines, like durable goods orders falling 1.2 percent or consumer inflation rising 3 percent year over year, and one can begin to pity anyone, professional or individual, trying to improve their lot as the first quarter comes to a close.

Those who see the dollar, and with it most U.S. stocks, resuming their decline are looking past the war. Such skeptics (and I am one of them) base their outlook on financial developments such as disastrous first-quarter profits, accelerating deficit spending in Washington and a current account shortfall that is running 5 percent of economic output.

"Stocks are still trading at historically high multiples, with the S&P 500 trading at 30 times current GAAP earnings, 22 times 2003 estimates and nearly 20 times 2004's estimates," says Mike Darda, economist at Polyconomics Inc. in New Jersey. "Viewed another way, total equity market capitalization as a multiple of after-tax profits remains more than 30 percent over its historical mean."

Darda was on the mark this year in his view that oil prices at $34 to $40 a barrel were destined to sink back below $30 (which they did.)

Now, with the Senate reducing the size of the Bush tax cut to $325 billion from $700 billion, Darda, a supply-side economist, says the risks of a steep stock-market decline are increasing. "Ongoing geopolitical risks with the possibility of a terrorist backlash to war in

Iraq could disrupt the movement of goods and people," Darda said Wednesday. "We still think our worst-case scenario of the Dow Jones Industrial Average hitting 5,000 is extremely remote, but the downside risks to the equity market outlook predominate." The price-weighted Dow index on Wednesday morning was 8,250.

First things first, like the war. The dollar (and stocks) are capable of further gains, especially if the Iraq invasion concludes rapidly, say the experts.

"I still think the dollar has a rally in it when the war ends, but the market participants will determine just how strong a rally it, based on how long, in their minds, the war goes on," says Chuck Butler, chief strategist at Everbank World Markets in St. Louis.

Butler is a dollar-skeptic. His forecasts of a weakening dollar in 2001 and 2002 produced 20 percent and greater gains for many of Everbank's buyers of foreign-denominated deposits. "The main thing," he said Wednesday, "is that eventually, the dollar returns to its underlying weak trend that it displayed before the talk of a war in Iraq began."

Barry B. Bannister, a capital goods analyst at Legg Mason in Baltimore, is applying historical context to the battles in Iraq. Bannister's current study of inflation cycles stretches to the year 2015, incorporating analysis that goes back to 1870. (From 2002 to 2015, the American stock market will average a 1.8 percent yearly return vs. 6.9 percent for commodities at the producer level, he says.)

His sense of history regarding the desert sands of Iraq goes back to the seventh century.

"From my knowledge of military history, in the Battle of Badr in the early 7th century A.D., Mohammed established his following by defeating superior forces sent by Meccan chiefs to destroy him," Bannister tells me. "He had been interdicting Mecca-Medina supply lines run by what he believed to be corrupt chiefs."

[zombienote: How hauntingly familiar...]

Mohammed and some of his relatives took advantage of a violent sandstorm "and defeated a force that outnumbered them substantially," Bannister said Wednesday. "You can bet that the talk on the Arab streets will soon be that this sandstorm (in the region) has historical similarities to the Battle of Badr and may impact regional sentiment if this battle drags on beyond the five-week or so (American) plan."

Bannister says in that part of the world, "where little has changed for centuries, the seventh century feels like yesterday."

[zombienote: See The End of Oil". The invasion is about geostrategic control of oil (as well as water, but that's another issue, for now) because "capitalism" and American Society are simply built on oil. Oil is running out.

There was a staffing held with the Pentagon, set up by those freaks from teh PNAC/AEI where the Military sorts were encouraged to see Saudi Arabia as an enemy and to rationalize taking their oil by means foul or fouler.

“The road to the entire Middle East goes through Baghdad,” said the administration official, who is hawkish on Iraq. “Once you have a democratic regime in Iraq, like the ones we helped establish in Germany and Japan after World War II, there are a lot of possibilities.”

In his key war speeches thus far - the axis of evil designation before Congress, the first-strike / pre-emption speech at West Point, and this week's Palestine-directed statement of institution-building through the principles of freedom - Mr. Bush has kept democracy and a market economy central to solving this world terrorism crisis. But statements of principle only go so far. The spirit and security of the United States now require the instrument of war.

The shock therapy of decisive war will elevate the stock market by a couple thousand points. We will know our businesses will stay open, that our families will be safe and that our future will be unlimited. The world will be righted in this life-and-death struggle to preserve our values and our civilization.

All this for oil and maintaining the status quo what I refer to as the 1 %, for brevity's sake.

Legalization of cananbis and development of a nationwide biodiesel production program would render much of this needless. All over the road trucks, diesel-powered electrical plants, and even diesel SUV's can run off fuels made from hemp and other biomass.

As the fuels can be used just like petroleum to make a variety of common items - pvc, for example - oil would lose value. Not entirely, but noticeably enough to the 1 %

Meditate on that for awhile.

Peace]

"xxdr_zombiexx" is the internet ID of an Atlanta-based writer and guitarist whosays this war is Not in My Name.

click HERE to download a song.