The war effort to remove Hussein from power and disarm Iraq
appears to be going well.
The war effort to remove Hussein from power and disarm Iraq appears to be going well.
The U.S. military has adjusted its strategy and is proceeding with a major push of armor and ground troops north into Iraq. In so doing, we may have achieved an element of surprise by launching the ground campaign immediately.
In the last war with Iraq, the ground attack followed a 39-day air campaign.
Avoiding protracted heavy bombing would be beneficial in limiting Iraqi casualties and damage to roads, utilities and other infrastructure.
The Pentagon is indicating that at least some of the major oil fields in the north and the south of Iraq are under U.S. control.
So, while some oil wells have been torched, it appears that we are making a major effort to limit the damage. There are, of course, still grave risks to be overcome and we pray for the men, women and children in harm’s way.
In financial terms, markets are valuing this incursion as very beneficial to the global economy.
During March 12 to 21, the Dow and the S&P 500 rose about 10 percent. This is the first time since 1998 we have had eight straight up days in U.S. equity markets.
European stock markets have also been very strong, with the French CAC and the German DAX stock price indices up about 20 percent.
I think these rebounds in equity markets are the result of our success and the drop in global risk.
This trend is reflected in a sharp drop in gold prices. Gold has dropped from a peak of $380 in early February and has fallen to about $333 per ounce currently.
A major improvement is the drop in oil prices. Meanwhile, reflecting reduced risk and improving global economic prospects, high quality bond yields have risen.
The 10-year Treasury bond yield hit a four-decade low of 3.6 percent and has subsequently risen to about four percent. Corporate bond yield spreads have tightened reflecting better economic prospects.
So far, stocks have been winners and gold, oil and bonds have been losers. What about various sectors? Aerospace and defense has outperformed, but not by a lot.
It will be important to watch war and economic developments to gauge sector and individual stock prospects.
For example, if the war goes very well we may see a drop in estimates of military ordinance expenditures and that could hurt those defense suppliers.
Or companies that would benefit from reconstruction might not have as much to do.
Of course, we all pray that as few bombs and shells are used and as little damage is done consistent with success in this endeavor.
This article is not intended to provide specific advice or recommendations for any individual.
Consult your financial adviser, or your attorney, accountant or tax adviser with questions.
Dan Newquist is a Registered Representative with Linsco/Private Ledger (Member SIPC). His office is in downtown Morgan Hill.
