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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (12225)	1/27/2003 12:05:22 AM
From: stockman_scott	Respond to of 89467

Saddam's Fate Seen Key to End Stock Slump Sun January 26, 2003 08:42 PM ET NEW YORK (Reuters) - Stock investors, slammed by the worst three straight years since the Great Depression, are looking longingly toward the Middle East. While no one wants war, equity participants are starting to voice their hopes that a quick resolution to the crisis in Iraq could well be a net positive to the stock market and could send stocks higher -- at least in the short term. What investors really hope is that Iraq President Saddam Hussein just packs it in and leaves town. While there are no indications that he's contemplating giving up power without a fight, the possibility -- fueled by reports depicting various scenarios of his leaving Iraq -- have tantalized financial markets for several weeks. "If flight or a coup were to be the outcome, the equity markets would go wild with delight and the price of oil would plunge," Barton Biggs, Morgan Stanley global strategist wrote. The Iraqi president's abdication would allow companies to plan ahead without plotting the consequences of war, and would cut crude prices. Oil is a major cost for companies and consumers and is a key psychological factor in the economy. Uncertainty about Iraq, and to a lesser extent North Korea, is hanging over corporate America despite improved profits in the fourth quarter, said Subodh Kumar, chief investment strategist at CIBC World Markets in Toronto. "Companies are saying their cost-cutting efforts have paid off in the fourth quarter. They're also turning around and saying we don't know what's going to happen the rest of the year," Kumar said. "(U.S. President George W.) Bush needs to get resolution of Iraq by the first quarter, and no later than the second quarter." While markets would quickly react to a resolution in Iraq, it would take time for it to work through to companies and the economy, Kumar said. He noted that although the Gulf War was over in February 1991, the economy didn't mend enough to get the first President Bush reelected in November 1992. "The market reaction tends to be instantaneous, but the business reaction tends to be more time-consuming," he said. Oil prices would likely drop to the $20 to $25 a barrel range, which businesses and oil producers can live with, while stocks would pick up nicely, Kumar added. The broad-based Standard & Poor's 500 index .SPX would likely go above 950, but until Iraq is resolved, it will likely keep around the 900 level, he said. BLACK GOLD The importance of oil runs a wide gamut in industrialized economies. Higher oil prices have wreaked havoc in the plastics business of General Electric Co. GE.N GE Chairman Jeff Immelt told investors during a recent conference call. "Our price is stabilized but oil-based raw materials are about 50 percent higher than we would expect at this point in the cycle," Immelt said, adding he thought oil prices would fall like they did when the Gulf War was over in 1991. "At that time after the Gulf War, the raw material prices collapsed and created good earnings momentum in that business," he said. "Nonetheless, it places short-term pressure on plastics." Arab officials have dismissed the idea that Hussein might step down and go into exile to avert a U.S.-led war on Iraq. Saudi Arabia has proposed to head off an attack, either the United Nations or a country should offer amnesty to all but the most prominent Iraqis, a Gulf diplomat told Reuters. The stock market would rally if Saddam were removed, but it would likely be short-lived as companies are not producing the profits to merit higher stock prices, said Jeffrey Saut, chief investment strategist at Raymond James Financial. Saut said he doesn't agree with those who say without Iraq and North Korea in the way, the market would be higher. "I don't buy the argument that just because profits are improving the economy has to go up," Saut said. Stanley Nabi, a managing director at Credit Suisse Asset Management who was born in Iraq and left 55 years ago, said oil prices might plunge immediately because of psychological reasons. However, he also said that Iraq is pumping crude at full capacity and boosting output would require three years of investment. The benefit to the United States might prove uncertain, as Iraq has signed contracts with the Russians and the French which would need to be sorted out, he said. "If he flees and goes to Libya, that would cause the (equity) market to go up, for a brief period of time," Nabi said. "Then we face our economic problems." reuters.com

To: Jim Willie CB who wrote (12225)	1/27/2003 12:13:34 AM
From: stockman_scott	Respond to of 89467

Home heating bills could double Chicago Sun-Times suntimes.com

To: Jim Willie CB who wrote (12225)	1/27/2003 12:16:55 AM
From: stockman_scott	Respond to of 89467

For now, the outlook for gold is golden By Steven Syre Boston Globe Columnist 1/26/2003 War worries generated a lot of ugly financial numbers last week. The stock market sunk and the dollar piled up an unprecedented nine-day losing streak against the Euro. Then there was gold, the shining investment story of 2002 that continued to advance and reach a six-year high last week. Gold for February delivery climbed to $368.40 by Friday, the highest closing price on the spot market since the end of 1996. Gold thrives on anxiety and economic uncertainty. The threat of war, especially a conflict that lacks support from American allies, qualifies in spades. Gold prices, up about 25 percent last year, have gained another 5 percent this year. So here's a fair question: What would happen to gold if we all woke up tomorrow to discover Saddam Hussein living in exile somewhere other than Iraq? Crisis over. The short answer is easy, gold prices would take a big hit. An answer covering a longer period of time - the balance of the year or over the next few years - is more interesting. I asked several professional investors who are also gold fans to estimate the temporary effect of war jitters on current prices and got mostly consistent answers. ''The war premium is maybe $15 to $20,'' says Boston hedge fund manager Paul Stuka of Osiris Investment Partners. ''At some point, will that come out? Absolutely.'' The biggest number I heard was $30 per ounce. No matter, it's clear gold prices will take a significant fall whenever Iraq ceases to be the worry it is today. But gold fans believe in a secular, longer-term bull market for the metal that did nothing but disappoint its owners over 20 years. The two keys: currencies under pressure, and basic supply and demand. Reflation, an economic buzzword for the new year, is the development that would boost gold prices. Gold bulls believe central banks in the United States and elsewhere, worried over the threat of deflation to their currencies, will ''reflate'' by printing more money. That would lead investors to move more of their money into hard assets. Stuka notes the current gold rally that began in November wasn't triggered by any war-related developments. He points to a speech delivered at the time by Federal Reserve governor Ben Bernanke, laying out steps the Fed could take in the unlikely event Japan-style deflation did occur. Fed chairman Alan Greenspan brought up the subject of deflation in unusually blunt public comments the next month. ''These moves have been telegraphed,'' says hedge fund manager Walter Cabot, who launched Apogee Gold Fund last fall. That chain of events will gradually create increased demand for gold, he suggests. But can supply grow at the same pace? Big gold-mining companies may have a hard time keeping up because new exploration has been curtailed for years due to depressed metal prices. There wasn't enough incentive to look hard for more gold sources. Most individual investors who put money into gold actually buy shares of those companies, which have performed more erratically than the metal they mine. The leading gold and silver index, composed of leading mining companies, soared 43 percent last year and has gained another 7 percent so far in 2003. But the same index had been up more than 60 percent during the middle of last year and plunged to near-break even within a period of just two months. One more warning about that index: It now trades at about 119 times earnings. The gold-producing companies have an impact in metal markets beyond the millions of ounces they provide. In the past, those companies have hedged their bets by selling huge amounts of borrowed gold. The hedging, which has helped derail past rallies, appears to be in decline. Lots of things could derail the bullish gold outlook. Economies could recover and begin to grow out of debt problems. A more stable global political environment would help. Increasing corporate profits would redirect more money back into the stocks and other financial assets. All those prospects would be pleasant, but it's hard to put much faith in them right now. __________________________________________ Steven Syre is a Boston Globe columnist. He can be reached at syre@globe.com. boston.com