A. CONCERNS INCREASE AS A SHOWDOWN WITH IRAQ NEARS
Besides what appears to be an inevitable war with Iraq, such other factors as the fear of terrorism, increasing tensions with Korea, higher oil and gas prices, the erosion of consumer confidence as well as a growing number of negative economic indicators, are all combining to scare the bejesus out of most investors. It is little wonder the equity markets are looking at new lows and bond prices have climbed, especially Treasuries, as investors seek safety in these troubled times. This seems to be a year of unprecedented risks.
Investors are realizing that even if there is a quick and successful war against Iraq, there is no assurance stocks and the economy will have a sustainable recovery. Though the beginning of a war may initially boost equities, we may soon find this war bringing more additional concerns, especially if the war is lengthy, casualties are high or if there are surprises. When looking at a possible postwar Iraq, even more concerns may surface. Certainly the U.S. will carry the considerable financial burden of restoring Iraq which will make the federal deficit much larger. Our self-imposed style of democracy on Iraq, a nation with divided ethnicity and religion, is not a lock for success. Additionally, the animosity and suspension of the Iraqi people towards us, combined with vested interests by certain MidEast countries for us to fail, are bound to create major challenges. Although a democratic Iraq could eventually bring more stability to the MidEast, an increased flow of oil and greater economic prosperity to the world, a failure could cause serious setbacks and repercussions.
Furthermore, increasing antiwar sentiment seems to be uniting the world in a common cause against the U.S. The implications of such damaged international relations towards the U.S. could be far reaching. Ironically, they may actually prolong the war with Iraq and make the U.S. a much more likely target for terrorism. A divided U.N. may also encourage such countries as North Korea to expand their nuclear capabilities and diminish proliferation progress. Henry Kissinger recently remarked on CNN, that he felt Saddam Hussein would be more likely to resign and go into exile, if the U.N. and the World were more united against him. However, the movements against the U.S., give him less incentive to cooperate. Additionally, the apparent altruism oozing from France, Germany and even Iraq, is not as it seems. Both France and Russia stand to loose billions of dollars from Iraq under a new regime and therefore are likely influenced in their disagreements with the U.S. towards Iraq, at least in part, by both monetary and political issues. Indeed, a very complicated web is being woven causing immense uncertainty, among investors who seem to have run to the sidelines and are in a state of paralysis. Top
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