Stock Research and Market To Be Affected Big Time Post November Election

The stock market is making new highs with the Dow Jones Industrial Average piercing the 12000 barrier for the first time since the Dow Jones was created. The question now becomes which way is the next 1000 or 2000 points, up or down. The market has always told us that it doesn’t like uncertainty. Far better is the devil you know, than the devil you don’t know.

The massive uncertainty facing the country is which way does Iraq go? Iraq is eating at the social fabric of this country. Traditionally, Presidents are held on a short leash when it comes to wars, and entanglements. Yes, as a country we have always fully supported the President initially, as we rally around the flag. As time moves on, Americans become impatient with their Presidents. This has been true in the past, and it is true today. Patriotism will only carry a President so far. Harry Truman was a very popular President at the end of World War II. A year into the Korean War, he saw his approval ratings fall to such lows that he couldn’t even think of running again for the Presidency in 1952.

Viet Nam destroyed Lyndon Johnson’s Presidency in spite of being elected up until then, by the largest popular vote landslide in history, almost 16 million more votes than his opponent. Jimmy Carter found himself entangled by the Iranian hostage situation, and lost his Presidency as a direct result. During the last 2 weeks of the 1980 election, I was told by Ronald Reagan’s campaign manager that if Carter secured the release of the hostages from Iran, Carter would win the election. The release never came, and Carter was driven out of office in a landslide.

We now see President Bush entangled by the Iraqi conflict. How does the war work itself out from this point forward? All Washington insiders if quizzed privately would tell you that the President is between a rock, and hard place. The wish that the Iraq people would embrace freedom, and democracy has turned out to be a Presidential vision that the Iraq people never shared, or embraced.

Democracy is every Iraqis’ second choice. If you are a Kurd, your first choice is that the Kurds be in power, and you are willing to fight and wage terror for that goal. The same is true of the majority based Shia, and the minority based Sunnis. When Saddam Hussein was in power there was an old story, “Did Saddam make Iraq, or did Iraq make Saddam.” It is inconceivable to believe, but nevertheless may be true that only a despotic, merciless dictator like Saddam Hussein could shape Iraq into a country. In Saddam’s case, he embraced and required terror to govern.

How does Iraq play out?

Enter the Iraq Study Group (ISG), a group headed by former Secretary of State James Baker, and former Democratic Congressman Lee Hamilton. The public purpose of the group doesn’t matter, the private purpose does. This President knows that his policies in Iraq have FAILED. He needs political cover to effectuate massive change. The Iraq Study Group will give him that cover. They will probably propose everything, and anything that is different from the current course we are on.

If the President is shrewd enough, he will embrace those portions that suit his purpose. That purpose is to change our current policies. The President also recognizes that the momentum this November is for the Democrats to take over the House, and perhaps come close to taking the Senate. As I write this, the Senate is in play, which means the Senate could also go either way. If either chamber of Congress changes party affiliation, the President’s hands could be tied severely.

Only the Congress has the authority vested in it constitutionally to appropriate and authorize the spending of funds. We could reach a point in time where spending for our military activities in Iraq will not be authorized. President Bush must act before we get to that point. The Iraq Study Group will provide the alternatives that this Administration will pick and choose from, to change our direction and get us out of the mess, which we have put ourselves in.

Two of the issues the ISG must deal with is why do we have the same number of troops (140,000) when the police and military in Iraq now number 300,000 plus. A few years ago, there were no police and the military was sent home - what gives? A second question is how do we leave Iraq, and not destabilize the country to the point where we throw the country into the hands of Iraq’s long-time enemy, Iran.

We are in a dilemma which is defined as a situation requiring the choice of two equally undesirable alternatives. The President will have to act very quickly after the election. He will not have much time if there is a new party in control in either chamber of Congress. The stock market will begin to act in a downward manner due to the uncertainty as to future policy choices.

We will probably have to consult and deal with both Syria and Iran, even though we do not want to. Both countries are major players in the region. Our dealings will be independent of other policy considerations involving Iran’s desire to possess nuclear armaments. The great experiment in creating democracy in Iraq is coming to an end. It could have worked, but the steps necessary had a brief window of opportunity, and that window has now closed.

The disbanding of the Iraq army years ago, along with the police, plus the firing of the top layers of the people who ran the government were all retrospectively MISTAKES. There is NO GOING BACK to revisit them. When the Iraq Study Group makes its recommendations after the November election, President Bush will have a brief window with political cover to change directions. If he does, the stock market in this country will more than likely continue to prosper. If he doesn’t take decisive and long overdue action, all bets are off.

Goodbye and Good Luck

Richard Stoyeck www.stocksatbottom.com

About The Author

Richard Stoyeck’s background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs Rockefeller Capital Partners and StocksAtBottom.com www.stocksatbottom.com .