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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (321)	10/28/2000 9:03:23 PM
From: excardog	Read Replies (1) \| Respond to of 74559

from the drilling thread some fairly smart ideas about the dollar and gold thought you might enjoy: Saturday, Oct 28, 2000 7:00 PM ET An investor's guide to the Mideast crisis - Hold your oil stocks and buy shares in defence contractors National Post, October 28 By Donald Coxe The good news is that few Arabs are listening to Saddam Hussein when he calls for a holy war against Israel. The Iraqi president has the money for mischief, because he's selling 3.0 million barrels of oil a day at big prices, but is having difficulty selling his brand of holiness. The bad news is that many Arabs are listening to screams for some form of confrontation against Israel, and that means trouble for many Palestinians and Israelis. And many investors. Oil prices would be high anyway, for reasons discussed in this space for more than a year. But loose talk from loose lips and loosed bombs on an American ship remind investors that the world is as dependent on Mideast oil as ever, and the Mideast is as risky as ever. Result: Oil prices, both spot and futures, are US$4 a barrel or so higher than they would be if there were peace. That is an obvious financial consequence of the breakdown of the Barak-Arafat talks. Less obvious is the run-up in the value of the U.S. dollar against most global currencies, including (of course) the pathetic euro. Whenever a global geopolitical crisis breaks out, panicky people rush to the haven of the currency of the sole superpower. That run-up gave Federal Reserve chairman Alan Greenspan the freedom (or the excuse) to respond to gastritis in the Nasdaq with heavy doses of monetary medicine. Fast money growth helps hold down a soaring dollar, and puts a safety net under swooning stocks. It's also great for bonds. Here's to St. Alan: Everybody wins! Since the first Palestinian riots, he has expanded broad U.S. money at a robust 11.3% annual rate. Greenspan's aid for U.S. stocks is, of course, much appreciated. But global stock markets have been reeling since the USS Cole was bombed. In particular, the Asian markets have been tumbling. Expensive oil is like a regressive consumer tax increase, and it is slowing economic growth around the world. The Asian economies import oil and export manufactured goods to consumers in the industrial world. Talk of US$50 oil if Saddam were to slash production has scared stock markets from Seoul to Singapore. How should investors protect themselves against a new outbreak of fury and folly in the Mideast? First, remember that the biggest reason for the long bull market has been the global peace that came after Ronald Reagan and Margaret Thatcher won the Cold War. Contrary to Marxian paranoia, capitalism flourishes best in peacetime, not wartime. Now is a time to protect your portfolio, not look for big gains. Second, maintain that high weighting in oil stocks you have been building since April, 1999. Ignore the advice of analysts who tell you now is a great time to cash profits and move into some other stock sector. Which other sector gives you portfolio insurance against a geopolitical catastrophe while also delivering you the highest earnings gains of any industry this year? Third, don't get tempted by the absurdly cheap euro to switch out of U.S. dollars. Yes, the U.S. dollar is grossly overvalued. Yes, the U.S. current account deficit is about US$1.7-billion a day and is a threat to global financial stability. But as long as there's a real chance of disaster in the Mideast, the dollar will stay strong. The U.S. economy gets more uncompetitive with each uptick in the dollar against other currencies, but dollar buyers are snuggling up to the Pentagon in times of trouble. Bet on the euro when the chances for peace improve. Fourth, keep building exposure to the companies who supply the Pentagon. Yes, the defence group has far outperformed the stock market this year, but it's still cheap. Check out stocks such as Litton Industries Inc. (LIT/NYSE), Raytheon Co. (RTAa/NYSE), General Dynamics Corp. (GD/NYSE) and Northrop Grumman Corp. (NOC/NYSE). They make what keeps Saddam and his ilk in check. Finally, keep your exposure to long-term government bonds, particularly zero coupon issues. If the Mideast explodes, central bankers will flood the financial system with liquidity, even if the consumer price index is rising smartly. Government bonds are a good investment, but they are the best possible investment in a full-blown crisis. Pray for peace, but protect yourself against war. _________________________ Don Coxe is the chairman of Harris Investment Management of Chicago and Jones Heward Investments.; don.coxe@harrisbank.com nationalpost.com.