Actually, it's still the economy, stupid.

Can you imagine if Bush had smoked Hussein on his first strike, Wednesday? The prospect of winning a war with a handful of Tomahawk missiles would have surged this market and vindicated Bush. Stay tuned. 

As the Dow has run up nearly 1000 odd points since our March 12th article, markets seem to be impressed with the war progress. However, what we really need is volume, which in turn leads to liquidity, which ultimately leads to more trade. Anyone who says the near term won't be volatile or that they know definitively the direction of the market is a liar, stupid or both. The only sure thing we can count on is the not-so-subtle gleams in CNN anchors' eyes as they wait for the big game. 

With the exception of lower rates, the landscape looks a lot like the first war in Iraq. Understanding that the purpose is different this time-regime change in Iraq versus liberation of Kuwait-the looming crisis that sunk GHW Bush is about to confront GW Bush; the weak economy. And the re-election season has begun, just to further cloud the issues.

Oiling his way across the floor…

The good news is falling oil prices, even though there are the expected reports of Iraqi well fires. As soon as that translates to main street gas pumps a large economic weight lifts. If the war spending can be kept to a reasonable level-- say $75 to $100 billion-- and oil prices cooperate, the specter of higher rates fades. 

Be that as it may, Bush must immediately turn his attention to the economy. Investors seem much more concerned about the backside economic effect than the progress of the war. Hussein's bluster notwithstanding, there is little doubt that the massive US presence will quickly overwhelm him and his progeny. He would be well advised to load the family into the SUV and get the hell out of Dodge.

This weekend will be interesting. Lower volumes indicate that investors aren't quite ready to bet heavily one way or the other. For those in cash, you might want to consider some exposure if the war progress goes well for the US. For those presently 100 percent invested, you might want to strap on some protection. An index put might be appropriate for the downside potential. A small position in an Exchange Traded Fund (the QQQ being the favorite) might do the job for those cash-heavy investors who want to gain quick and liquid exposure to any perceived upside. Come Monday next, the world will likely be a very different place. Doing nothing may be just as foolhardy as being fully committed, long, short or all cash and bonds.

On another front there's the brewing national Natural Gas deficit. The situation looks decidedly ugly, which could be good news for investors. We are going to keep a close eye on the sector during March--which is predicted to be a colder than normal month in the usual areas.

Summer will be hotter than winter

The fact that the heating season is all but over for the year is not the point. Given that the drawdown of supply from November 2002 to March 2003 looks to eclipse the previous record set in 1996, the challenge will be to replenish natural gas supplies by November 2003. The average withdrawal between 1976 and 2002 was 1,450 Bcf (billion cubic feet). For 1995-6 it was 2000 Bcf and looks to be hitting 2,300 for winter 2002-3. That could leave storage levels at a record 1000 Bcf deficit, which will need to be replaced by November 2003. 

What this means is that the US will have to inject 3,000 Bcf of natural gas to address both the deficit and the demand for winter 2003-4. Good news for natural gas companies as prices will likely move up apace. There are already natural gas supply problems. We're going to do some more work for our readers on this interesting and potentially profitable development.

The summer will be the timing for price spikes should the replenishment of working gas storage supplies look to be slow or in danger of missing targets noted above. Nothing like a commodity crisis to drive a profitable sector.

As always, we'd like your comments on this as well as any suggestions on smallcap companies you think we should look at.

We will also be keeping a close eye on the Bush administration for resolution or plans to address the country's economic challenges. If you have any thoughts on how that might be accomplished, email George W. at president@whitehouse.gov.

In closing….

War, above all, is Hell. Our thoughts are with our readers who have friends or loved ones overseas. We hope for a quick resolution and speedy, safe return of the troops.

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