Markets Riding Geopolitical Wave
Market
Trend: Up With a Possible “Rounding
Topâ€
Market Outlook:
Murky
Sector Watch:
Housing (-)
Peter’s Pick: ATS —
China in the skies with diamonds
Navarro’s Broad Market Outlook:
When Geopolitics Meet Retreating Money Managers
After the Russians invaded Afghanistan,
they became the perfect punching bag for a broad coalition that included both
the U.S. and the very same Muslim terrorist network that is now seeking to pummel
the U.S. in Iraq. It was an ugly show that featured the heads of Russian soldiers
used as balls in Afghan villager games and paved the way for the mother of all
regime changes in Mother Russia.
As the violence continues
to escalate in Iraq, with another particularly Bloody Sunday, the Bush Administration
must be wondering just exactly what is hitting them — and whether another
such regime change is in the works on domestic soil. In truth, this is a perfect
battlefield not just for Howard Dean but for Al Queda. The terrorist network
can funnel in hundreds if not thousands of “freedom fighters†into
the country from sympathetic launching pads in Syria, Jordan, and Saudi Arabia
and seemingly pick off American G.I.s at will. At some point, push is going
to come to shove, and that shove may well bubble over into the world’s
financial markets — now fueled in large part by the far more salutary
“war is good for business†massive infusion of defense and deficit
spending.
Lest you think at
this point, I sound like a merry little lamb or dove, please do not jump to
that conclusion. I’m just as glad as you probably are to see Saddam gone.
Still, the truly objective investor must look at the geopolitical landscape
just as clearly as he or she does the macroeconomic data and it’s pretty
damn clear now that both Don Rumsfield and Dick Cheney, who led the “invade
now†charge, are either pretty good liars or simply stupid.
As for the macroeconomic data itself, it is quite strong right now. But while
hot wars may provide excellent fiscal stimuli, quagmires are another thing entirely.
At this point, it doesn’t look like there is any end in sight to the G.I.
shooting gallery. And, as I have opined before, it may very well end badly in
this God- and Allah-forsaken land.
From a market perspective, this quagmire effect must at least put a damper on
the current atmosphere of irrational exuberance. Closer to home, there is also
the growing problem of the fat, dumb, and happy portfolio manager crowd that
is sitting on massive gains for the year and wondering now, quite rightly, whether
the prudent course is to simply cash in and post a stellar year — or,
as the song goes, “keep on pushing†to try and wring every last
little cent out of the upward move.
Methinks that at least the more prudent wing of the fat, dumb, and happy crowd
will begin bailing out for fear of a correction — and that these bailouts
might lead to a self-fulfilling prophecy.
Of course, the counterweight to all of this will be the traditional “third
wave†of money that comes into an upward trending market after the early
smart money and the second wave of institutional buying. That third wave, of
course, is Joe and Jill online investor — the most likely candidates to
get left holding any market correction bag.
My bottom line is that while the market continues to rise smartly, there are
smart reasons to begin to consider an exit or move to the short side. The last
consideration in this matter is that in the stock market’s history, there
have been precious few straight upward moves since we’ve since last March
without a major correction. So, at a minimum, just be careful.
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Look for the markets to
ride the waves of geopolitics and technical indicators — at least until
the end of the week when a wave of data arrives. It could be a rocky day for
the dollar come Thursday if the trade deficit bounces back up. I’m ever
vigilant for the PPI to start showing signs of inflation as the world economy
heats up. And look for any signs of consumer sentiment reflecting the current
woes in Iraq.
Up: The
Broad Markets—