Weeks ago, during tense negotiations at the United Nations and uncertainty overwhether there would be a war in Iraq, stocks came close to their lowest level in four years. Then with the start of the invasion of Iraq, when victory seemedonly days away, the Dow scored its best performance in 20 years, advancing about 1,000 points over eight trading sessions.
After news of U.S. and British forces encountering unexpectedly strong resistance, investors became worried all over again.
Wall Street seems as connected to Iraq as is the White House war room. But I have news for anyone who's investing on the basis of whether this war is going well or not: Forget it. Unless you're trading on insider information coming from the Joint Chiefs of Staff -- and if you are, you deserve to go to jail -- you're not going make money this way because you can't out-guess what everyone else knows about this war.
More to the point, we won't know for years the real consequences of this war. We won't know whether our display of military might stabilizes the Middle East by intimidating other potential rogue nations, "axes of evil," andterrorist groups or has just the opposite effect -- igniting so much anti-Americanism that the Middle East becomes less stable, oil supplies less reliable, and terrorists stronger.
We won't know how much it's going to cost to occupy Iraq and keep the Suni's and Shiites and Kurds and Turks from killing one another, and getting relief and humanitarian aid to those in need. And we won't know the long-term effects this war on the value of the dollar, or on global trade, investment, and cooperation with allies in Europe and elsewhere who are now furious with us.
Finally, bear in mind that the American economy isn't just under the shadow of this war. It's suffering from two other maladies at least as significant.
The first is a continuing hangover from the 1990s bubble. America still has toomuch productive capacity relative to demand for the goods and services that canbe produced. And with or without a war in Iraq, there's no sign demand will pick up any time soon.
The second malady is a continuing distrust of what's published in corporate reports and on balance sheets. Wall Street still has a long way to go to convince investors they're getting reliable information.
Yes, a victory in Iraq could revive share prices somewhat, but probably nowherenear as much as victory in the first Gulf War rallied the stock market in 1991.
Even after we take Baghdad and depose Saddam Hussein, even if we so with minimum casualties, as we hope and pray we will -- there's still a lot of work ahead of us. Investors, be warned.
