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Last month I attended the annual
TD Waterhouse Institutional Investor Conference where I heard from a diverse
group of experts including former Secretary of Defense, Casper Weinberger;
Nobel Prize winner in economics, Vernon Smith, Ph.D.; and Professor Jeffrey Garten, Dean of Yale School of Management. The main topic
of the conference revolved around the current geopolitical environment, the
seemingly inevitable war with Iraq and the likely global economic
outcome that would follow.
The overwhelming consensus was
that we will prevail with the military action when it finally comes. However,
during this waiting period all institutions will remain in a state of
paralysis limiting further economic growth. For this reason I do not expect
any recovery in the financial markets or confidence to return until either we
start the military action in Iraq or Saddam gives up and quietly
relocates to a retirement center for despots and dictators (which
unfortunately seems quite unlikely). During this waiting period, don’t be
surprised if we retest the October lows of 7200 on the Dow, which
optimistically would represent an excellent buying opportunity.
After we usher in a regime change
in Iraq, expert opinions point to a
continued war on terrorism with the next front to be determined by the events
and actions of the terrorist organizations and the countries that harbor
them. The war will most likely not be a military action, rather a battle in
the economic, diplomatic and intelligence arenas.
As the first wave of bombing starts
and the fog of war rolls in, we will get a better idea of what to expect in
post-Saddam Iraq. Are we going to see Saddam torch
Iraq’s oil fields, thereby driving up
the price of oil to levels we have never seen before, or will his generals,
whose loyalty may evaporate like rain in the desert, overthrow him before he
can destroy the country with fire and weapons of mass destruction? And what
kind of government will we see in post-Saddam Iraq? Three groups, the Sunnis,
Shiites and the Kurds have been battling for power for years and would need
to cooperate in the rebuilding of a new Iraq. Will they be willing to put away
their age-old religious differences to form a new, secular, representative
government? In any case, we will prevail militarily and eventually Iraq will stabilize. With the vast oil
reserves, Iraq can finance their own rebuilding
and in the process oil prices will decline. A drop in the price of oil will
stimulate both our domestic and global economy better than
any tax or interest rate cut.
These times are very uncertain and
we are at a turning point – or perhaps a point of no return. But we will
prevail just as we did in WWII and the Cold War that followed. Our enemies
then -- Germany, Japan and eventually Russia
(USSR)--have become members of our free markets with open, democratic
governments – something that was doubted by many at the time. I expect we
will see the same outcome as the last of the world’s despots and dictators
fall. President Bush addressed this point recently when he suggested that a
new Iraq, democratic and free, could
spread the seeds of democracy and freedom throughout the region.
The world’s despots harbor and
support terrorists because it is a way to perpetuate their power base. They
maintain an alliance of hatred against free people around the world. And what
country best represents that freedom? None other than United States of America. That is why we are a target and
that is why we must and will prevail.
When we prevail and the last of
the despot regimes are liberated, globalization will hit full stride.
Technology will continue to connect us and reduce the costs and barriers to
trade. We will see the creation of wealth beyond our wildest expectations.
History has shown that freedom and free people will prevail. Never take
freedom for granted – it needs to be defended and protected from tyranny.
Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in Racine, website address www.toyourwealth.com.
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