The InvestMentor

January 30, 2003

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I was worried about Iraq recently. You too? That’s the problem—and that’s being reflected in stocks. The market doesn’t hate conflict or war; it hates uncertainty, and the implicit risk that comes with it.

I asked myself, as I do from time to time, what my heroes would do and think in this situation. On nationalism, I go back to my Teddy Roosevelt stuff. Doing so, led me to some views on how we should proceed with Iraq from this point, but I'll also share various forecasts for the market under different scenarios.

I wondered if this remarkable man—an expansionist and big contributor to the national greatness we know as America today—would be troubled about how we've handled Iraq so far. And after re-reading his "Strenuous Life" speech, I think it's clear where he stands. Not only is Roosevelt rolling over in his grave, if you were to put a magnet in his pocket and wrap the coffin in copper wire, he could probably power all of Oyster Bay.

Fans of TR know he was a man of many paradoxical traits. He was one of the first prominent hunter/naturalists, was a hard working man that made ample time for his family, and was a great man of both war and peace. He led the charge up San Juan Hill, ran the Navy department, and even offered to head an infantry division against Germany in World War I, nine years after the end of his second term as President. But he also signed a peace treaty with Panama and negotiated the end to the Russo-Japanese War.

Congressional Medal of Honor winner. Nobel Peace Prize recipient. Bull Moose stud.

Now, drawing conclusions about what the guy would do certainly leaves me open to debate. However, anyone can infer plenty from his interactions with other nations and leaders during his term in the White House, as well as the endless books he wrote on America's place in the world. But his spoken word is clear.

In April of 1899, TR spoke to the Hamilton Club in Chicago outlining his philosophy of life and his attitude toward US nationalism. He tells us (in pieces),

"I wish to preach, not the doctrine of ignoble ease, but the doctrine of the strenuous life…A life of slothful ease, a life of that peace which springs merely from lack either of desire or of power to strive after great things, is as little worthy of a nation as of an individual…When men fear work or fear righteous war…they tremble on the brink of doom…

As it is with the individual, so it is with the nation…Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory nor defeat.

If in 1861 the men who loved the Union had believed that peace was the end of all things, and war and strife the worst of all things, and had acted up to their belief, we would have saved hundreds of thousands of lives, we would have saved hundreds of millions of dollars…We could have avoided all this suffering simply by shrinking from strife. And if we had thus avoided it, we would have shown that we were weaklings, and that we were unfit to stand among the great nations of the earth...

We of this generation do not have to face a task such as that our fathers faced, but we have our tasks and woe to us if we fail to perform them! We cannot…be content to rot by inches in ignoble ease within our borders, taking no interest in what goes on beyond them…"

We of this generation do not face "a task such as that our fathers faced"—the war on terror, and any war against Iraq doesn't stand up to The Great Civil War—but "we have our tasks and woe to us if we fail to perform them!" The strenuous endeavor—war for peace sake—is how TR would have it.

Barring Saddam's imminent departure (voluntary or otherwise), the war dye is cast and it's in the interest of the market, the economy, our country, and humanity to swiftly and summarily take Baghdad, with or without domestic or international consensus. It is, as Teddy would say, a moral imperative.

However, I stick by my prediction that this will be solved without massive American bloodshed. I'm standing by the view that Hussein will voluntarily go into exile, or be overthrown before our infantry enters Baghdad.

That would be the best outcome for everyone involved, and immediately be good for nearly 1000 Dow points over the short-term, starting with a nice 400-500 point one day boost.

If I'm wrong, scenario two is that we go in with most countries supporting us and we triumph militarily, with some messiness, but no obvious escalation outside of Iraq or weapons of mass destruction usage. That too would lift the market nicely. Not as quickly, but success in Iraq will raise consumer confidence and return focus to the continually improving economic picture.

Scenario three is the long shot—the one we all fear, partially explaining recent stock weakness. Namely, the conflict involves weapons of mass destructions OR it sparks radical Islamic governments or factions to attack the Allied Forces or Israel. Ironically it's this fear--put forth by anti-war proponents--that would be the ultimate vindication for why we needed to have go in to begin with. The market would respond negatively and stay that way until the end of the battle, then begin upward.

For the first time in 23 years, we're very close to a world without Saddam Hussein's tyranny. If he won't leave on his own, the markets, and future generations of humanity, demand us to "walk softly and carry a big stick."