Are We Going To Get A War Rally?

  • February 10, 2003
  • Gary Kaltbaum


Take my past few commentaries, put them in a
blender, mix, and you get what I think of the market’s action. Nothing has
changed. In fact, the technical condition remains horrid…and that’s the nicest
thing I can say. I am starting to believe again that the only way this market
can resolve itself to the upside is another one of those panic selling episodes
where the VIX hits 50 and sellers get out at any price. That is not a
prediction…just something to think about. I would not ignore the statement as
the July and October lows came out of panic selling episodes.

There is something else I wanted to talk about today…and that is the two
words: CONVENTIONAL WISDOM. Conventional wisdom told you in the last three
years:

  1. The bear market
    would last 9-12 months…a normal bear market.

     

  2. As soon as the FED
    lowers rates, the market would go up. Well, the FED started lowering on
    January 3, 2001.

     

  3. The second half
    will be better. I have been hearing that every year.

     

  4. As soon as the
    economy comes out of recession, the market will pick up.

     

  5. Republicans
    winning the White House will help the market.

     

  6. Republicans
    winning the Senate will help the market.

     

  7. Tax cuts will get
    the market going.

I can go on and on,
but I wanted to talk about the latest so-called conventional wisdom, and that is
that as soon as war breaks out, buy the market. It is just absolutely amazing
that the “perma-bulls” — you know, the ones who will stay bullish if the DOW
goes to 1000 — are at it again. Their new line, that is lifeline to hold on to,
is the comparison to the more-than-likely upcoming Iraq War to Desert Storm from
1991. Very simply, ignore the heck out of them. I know it is tough. Every single
person you hear makes the comparison. DO NOT GIVE IT
ONE THOUGHT.

The market does not
care about Desert Storm. The market does not remember Desert Storm. In fact, if 
these doughnuthead strategists would just take a couple of minutes out of their
million dollar salaried time and look at Desert Storm, they would figure out
that the market bottomed in October 1990. Desert Storm did not start
until January 1991. Most importantly, we were still in a secular bull market at
that time. We are in the exact opposite position right now. I have no doubt the
market can rally if we win the war quickly…especially if the market is
oversold at the time. As of this second, that rally will be sellable or
shortable. But as usual, I will let the market at the time be my guide.