The following editorial was published in Price Perceptions issue #1238 on March 22, 2003

After the War - Part I

This has been a terrible winter for most Americans...

  • Many lost jobs

  • The stock market fell back to last fall’s low

  • Weather was worse than normal

  • Heating bills were record high

  • Terrorist threats heightened public fear

  • The world began to view us as “bullies”

  • Gasoline prices reached record levels

  • North Korea became a nuclear threat

  • We began an unpopular war in Iraq
Nearly all the news this winter has been bad, especially economic news...

  • The US trade deficit swelled to record proportions

  • The budget deficit will reach record levels

  • Unemployment is the highest in decades

  • The dollar plunged nearly 20% in three months

  • Trade frictions are rising
It is difficult to remember a more trying winter. It’s as if everyone is experiencing depression of one type or another. What we desperately need is an event, a happening, that will shift our thoughts and emotions from the terrible winter of 2003 to a springtime that brings hope, peace, and a sense of security again.

Today, the war with Iraq is on everyone’s mind. We fear destruction of oilfields, use of chemical weapons, and terrorist retaliation against US cities. However, reports on the war have been positive to date. We could experience a groundswell of good emotions again...

... if the war were to end quickly with a minimum of bloodshed
... if US soldiers are seen helping Iraq citizens
... if the US immediately provides food and medical aid
... if world perceptions of America begin turning positive again

Americans would relax, go out to eat, have a spring barbecue and plan summer vacations. A resurgence of confidence would lift the cloud of gloom over many markets.

Markets are a reflection of human emotions. Not just greed and fear, but also negative and positive anticipation. Commodity markets have been in a state of depression in recent months... Rallies fail to carry through... Positive fundamental developments have been short lived... Nobody wants to own inventory... And, futures have traded at historic discounts to cash markets.

A positive war outcome could become the catalyst needed for emotional change in commodity markets. The stock market rebounded 3% since March 11 as emotions began shifting away from “doom and gloom.” The same emotional shift could bolster livestock, grains and soft commodities in the near future.

Bill Gary
CIS, Inc.

The following editorial was published in Price Perceptions issue #1239 on April 5, 2003
After the War - Part II

In the March 22 issue, we explained that a groundswell of positive emotions could be released as the war comes to an end in Iraq... We would celebrate and go out to eat... We would enjoy spring barbecues and plan vacations... And, a resurgence in confidence would lift the cloud of gloom over many markets.

In addition to a surge in emotional exuberance, the following forces will also contribute to near term economic prospects...

  • Lower gasoline prices will put money back into consumer pockets.

  • 40 year lows in interest rates will stimulate spring house hunting.

  • International tensions will ease, halting threats of boycotts and reducing trade fears.

  • The promise of tax cuts will inspire financial confidence.
It’s what comes after the emotional resurgence and better near term economic prospects that’s worrisome...

  • The US will be left with mammoth budget deficits after the war and reconstruction. This will limit ability of the government to stimulate the economy through additional tax cuts and/or greater spending.

  • The Fed has cut interest rates twelve times. One or two more cuts and rates will be close to zero. Therefore, further economic stimulus from lower interest rates will be limited.

  • Consumer spending has held the economy together the past two years. This was accomplished primarily through home equity loans and refinancing. How- ever, interest rates can’t fall a great deal further. Therefore, the housing boom will subside and economic stimulus from refinancing will be limited in the future.
The US experienced unprecedented prosperity during the Nineties by wealth creation through rising stock prices. The Federal Reserve has tried to maintain that prosperity in the new millennium by creating wealth through rising real estate prices. However, it appears we are running out of “wealth creation” measures to stimulate economic activity. Maybe we’ll have to go back to making money the old fashion way... by earning it!

I was a corn buyer for a large milling firm in the early Sixties. It was a period of slow, steady growth punctuated by intermittent recessions. In those days, the corn market moved about 10 cents from seasonal high to low and futures traded in eighths of a cent. Fortunes weren’t made overnight in the stock market, commodities, or through rising home prices. Instead, fortunes were accumulated over a period of years through a meticulous series of small trades.

Some economists are forecasting economic gloom and doom for months and years ahead. Others are expecting a return of the “miracle” economy through new methods of quick wealth creation. Those who prosper in the future may find that it takes longer and requires more patience. One astute trader of the Sixties always said: “There are only two ways to make a million dollars in trading. You can make it in one big trade that requires uncanny luck... Or, you can make a thousand dollars a thousand times.” It looks like the slower, methodical way will become the wealth building process of the future.

Bill Gary
CIS, Inc.


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