War will End Soon; Final Bull Trap About to Begin

The bombing campaign against Afghanistan along President George Bush's avowed "war on terrorism" will soon be put on hold as the United States must contend with a major battle of its own on the home front. Only this battle, unlike the military initiative overseas, is of an economic nature and will test the country's resolve as it has never been tested before.

Our confident assertion that the war will soon end is based on the tale of the tape, the market tape that is. All one has to do in order to assess the outlook for finance, economics, and even geo-political uprisings is listen to the message of the markets. In this case, the markets are screaming "no go" to President Bush's determination to "stamp out terrorism wherever it may lurk." Bear in mind that wars are extremely costly and probably qualify as the single most expensive endeavor among all human affairs. Without money and lots of it, no country can afford to fight a major war for very long. And money is something the United States is lacking right now.

Quite simply, the U.S. entry into the field of battle was extremely premature. None of the economic indicators that always confirm that a protracted war is about to be fought are present right now. In fact, the indicators are going in the complete opposite direction than what would be expected at the onset of war. For example, the price of NYMEX oil and gasoline have plummeted in recent weeks, proving flat out that there will be no war in the Middle East involving the United States anytime in the immediate future. Petroleum is a chief component in any major war and fuel prices have a way of discounting war well in advance and increasing in response to it. Moreover, with the U.S. to a large extent dependent upon oil imports from the Middle East, any attempt at warring in this region would surely guarantee restrictions upon supplies, automatically boosting prices. None of this has happened, but instead oil and gas prices continue to drop. The petroleum markets are screaming "No war on the horizon!"

Another prime component of any wartime economy is steel, iron, copper, and other base metals. Steel production is essential for any prolonged military campaign and no nation can win a war without it. Need we even comment on the disgraceful state of the domestic steel industry? Two of the largest steel producers in this country are on the verge of bankruptcy and many others have already gone by the wayside in recent years. Steel and copper prices themselves have not responded in the manner one would expect in the face of a major war. After the WTC/Pentagon bombing last month the major airline executives began screaming to Washington for a bailout. The steel producers have been begging for a bailout for years and a bailout has not been forthcoming. Bottom line: Until big steel gets bailed there can be no big wars.

Yet another critical factor in the analysis of war is the precious metals market. Gold and silver cannot be permitted to rise to great heights in time of war; doing so sends a vote of no confidence in the government on the part of the people. If history teaches us any lesson it is that majority consent is necessary for any major war to be successfully waged. The United States government MUST have the support of its people before it can wage battle again the 35 or so countries that fall under Bush's scope of fighting in the "war on terrorism." A rising gold market would undermine this effort and would be a token of massive discontent among the citizenry. It would also confirm that the country's financial house is in disarray and no country can afford to fight a prolonged battle until it has first shored up the home front (viz., the economy) reasonably well. The U.S. economy has a lot more downside potential before all the leaks can be safely plugged; therefore, there will be no going to war until the domestic economic crisis is dealt with.

Another indication that war is not yet on the immediate horizon for the U.S. is the fact that the aviation sector (specifically the military contractors) have shown no major improvements in their outlook so far. While the stocks of missile builders have experienced impressive booms in recent months, the Boeings and Raytheons have not. Until these stocks show signs of improvement it signals that the insiders see no war on the immediate horizon, for if they did, these stocks would definitely reflect it in advance.

Finally, the recent rally in the major U.S. stock indices is an indicator that the bombing initiative will soon end. Markets don't like wars, at least not in the early stages, and the fact that the Dow and NASDAQ have managed an impressive rally in the face of the bombings shows that insiders are aware that the bombings are about to cease, at least for a while.

Confirming this assessment is the fact that Pentagon officials have reported as early as today (Oct. 12) that a potential "freezing" of the bombing campaign is being considered. This only confirms what we already know from the charts, namely that Bush and Co. were foolish in rushing into war when the economy and commodities sectors cannot support it at this time. Bush will have to wait awhile before he gets his war on terrorism. For now, the Commander-in-Chief will be busy trying to heal the wounds of the bruised and battered economy.