truecontrarian.com
SPECIAL WAR ALERT UPDATE (all sections below remain unchanged, in the interest of saving time): The media has completely misrepresented the way that the financial markets will respond in the event of a war or other upheaval in Iraq. The Iraq uncertainty is not causing the bear market in U.S. equities. In fact, it is just the opposite: the Iraq uncertainty has delayed a lot of selling of equities that would otherwise have occurred, and has thus put a temporary delay in the three-year bear market. Once the situation is resolved, one way or the other, there will be nothing to look forward to except a worsening of the recession, greater unemployment, continued record trade deficits, persistent overvaluations, and a falling U.S. dollar, all of which translate to a major collapse in the U.S. equity markets. Months of pent-up selling will cascade all at once, possibly causing U.S. equities to drop 40% within a few months. The initial response to news of an actual war will probably be a very brief rise in U.S. equities, as the media has convinced the average investor that the Iraq situation, combined with 9/11 and scandals such as Enron, are the primary (or the only) causes of the U.S. bear market, rather than the horrible fundamentals of the U.S. economy, the inevitable unwinding of the 1990s bubble, and the huge debt/deficit. Gold and its shares are likely to decline in the immediate aftermath of any resolution to the Iraq situation. Therefore, one should use this upward spike in equities and downward plunge in gold, should it occur, as a buying opportunity for gold and its shares, and a fabulous chance to sell short U.S. equities. Remember that for a few years, there was uncertainty about Microsoft due to the Justice Department intention to break it into pieces. Once the suit was dropped, Microsoft rallied for about half an hour to a split-adjusted price of 38.07 last June, then collapsed thereafter; it closed at 24.86 on Friday. The breakup uncertainty was actually keeping the price of Microsoft inflated, not depressed, as sellers who knew the fundamentals wanted to see a resolution to the issue before they sold.
|
