Many commentators, notably Jim Cramer, have made an analogy between our current situation and that obtaining prior to the Gulf war. In their view, we will win the war in a cakewalk and the outbreak of hostilities will be bullish because it will signal the end of the uncertainty. Today's rally on the back of Colin Powell's speech to the UN seems to substantiate this view. I have serious doubts about all this. First, as noted by Bill Fleckenstein and others, war will not change the current dismal state of corporate profits and visibility. Spending billions of dollars on bombs and jet fuel seems unlikely to help the overall economy, and the resultant budget deficits give big government pol's an excuse to keep taxes high. Second and more serious, it seems to me that the current situation and the pre-Gulf war situation are vastly different. In '91, Iraq had seized Kuwait, giving it control over a massive amount of oil, plus it was poised to take the Saudi oil fields in the Eastern Province of Saudi Arabia, which would have given Iraq a stranglehold on world oil supply and massive revenues to build its military. We faced a dire threat, and the stock and oil markets reflected that fact. When the threat was removed, it was logical that they would respond as they did, although the timing may have surprised many. Today, the threat is more theoretical. Iraq is dangerous but does not pose an immediate threat to world oil supplies. Indeed, it would like to sell more oil. Removing Saddam perhaps lowers the tension level and may well prevent future horrors. It is at best however an incremental improvement, and we have no way of knowing what the aftereffects may be. Under the circumstances I feel those expecting a replay of the Gulf war rally may be disappointed.
Yeah, expect a sucker rally and I do not think the war will be that easy this time. Saddam has much more at stake this time than it had before. For him it is a death or life situation. It was not like that in 1991.
I think this year's war will be the antithesis of 1991. That year was "sell the war, buy the win". This year will be "buy the anticipation of winning the war, sell the win". The onset of the 1991 Persian Gulf war was rather quick, so all the market could do was react badly. This year, we have a probably date on when the war will start, e.g., probably in the middle of March, so equities may have the chance to rise until then. Given the possibility of two upside surprises, 1. Hussein is exiled, or 2. Hussein is assassinated in the interim, a long bias may be the better bet. Oh, and I agree with some of the previous posters that this war has the possibility of many nasty surprises, especially to our own troops.
Nobody knows exact outcome of war. Millions of people worldwide deplore the idea of war especially in Europe where they lived through the senseless destruction. On the other hand we have memories and results of SEPTEMBER 11. Thousands lost their lives, billions of dollars of assets got wiped out and billions will have to be spent on replacing the destroyed. America cannot afford these lunatics another chance at mass destruction. Just think also about how the world will change especially the US if the oil producers jack up the price of oil to over $50 a barrel. The USA has been backed into a corner and none of it's choices are "nice"
I agree with your former point and disagree with the latter. I think we're just exceedingly paranoid after 9/11. Most Americans are scared, and they're willing to believe anything after that horrific day. In 1991, we had a just cause for repelling the invasion of Kuwait. Today, if you listen carefully, all we hear is lots of propaganda and scant evidence from our own administration. It seems that Cuba in the early 1960's and Russia in the 1970's were a far greater threat than this pathetic Iraq, and we were able to contain those countries quite successfully. It's possible that once Hussein is deposed, Iraq is going to morph into a post-modern Yugoslavia with plenty of factions and bloodshed. Pre-Hussein, that country was an even greater nightmare.
Oil reserves are not unlimited. A war is not a substitute to oil alternatives that this nation and the world has to come up with sooner or later. Wasting money on any war is utterly stupid and shortsighted. One should spend this money on research that would lead to oil alternatives or to better health care or to anything else more morally acceptable. There are many better causes to spend money on than a war.
Which makes you wonder who and what really was behind 9/11 and why the US intelligence failed so miserably to warn the nation about the attack. The war with Iraq is not going to remove the thread of future terrorist attacks, in fact they are even more likely to happen as a revenge for this war.