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The
bond market pundits were wrong again, as they had predicted
that the bull market for bonds was in fact over in early 2003.
Logically however, the bond market tends to out-perform
the stock market in times of geo-political turmoil, which
was certainly the scenario throughout February, with Iraq
and North Korean constantly in the news daily.
U.S. government bonds lost their edge on U.S. corporate bonds
throughout February, albeit they still finished the month
up significantly from their price levels set in January.
Most stocks still remained quite pricey as compared to historic
norms throughout February even though most stocks continued
to lose steam throughout the month.
February ended without the capitulation by investors that
many stock market pundits have predicted would have to take
place before the bear can be tamed.
Capitulation means that most investors throw in the towel
and therefore sets the stage for the radical decline of most
stocks.
The stock market decline during February was more the outcome
of a lack of buyers than a stampede of sellers.
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March
began with most major stock markets indexes declining.
Investors were concerned about the escalating tensions in
reference to a potential up-coming war with Iraq.
With every twist and turn of the constant news being disseminated
in early March in reference to the status of the
inspectors in Iraq seeking out weapons of mass destruction,
the stock market rose and fell.
The traders had a field day trying to extrapolate for the
news updates daily, when and if, the U.S. would finally attack
Iraq.
The economic statistics released throughout March continuing
to depict an ailing U.S. economy, as the labor force continued
to weaken, and corporate earnings forecasts were ratcheted
down.
Many financial pundits prognosticated that it was the uncertainty
about the potential for war ahead with Iraq that was the anchor
on the U.S. and global economies.
In Mid March when president Bush announced an ultimatum to
the leader of Iraq, Saddam Husseim, to leave Iraq or face
"serious consequences", stock market investors became emboldened,
and as such, bid up stocks anticipating a clean, fast, war,
with little human casualties or economic destruction.
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After the U.S. did finally attack Iraq in mid March, most
major stock market indexes rocketed higher for a few days
as investors expectations remained very positive that
Saddam Husseim would capitulate without a fight.
During the first weekend of the War with Iraq, U.S.
and Iraqi casualties started to mount, and it became apparent
that the war would in fact be longer and more difficult than
investors had predicted.
This set the stage for a massive sell-off in the stock market
which carried through until March ended.
The bond market took its cues from the stock market rising
when the stock market fell, and falling when the stock market
rose, throughout March.
The first quarter ended with most major stock market indexes
in negative territory for 2003, and most bonds in positive
territory.
I remain cautious as to the outcome of the war in Iraq and
its affect on the stock market. Therefore, I continue to be
heavily weighted in short-term treasuries until the dust settles
on the war in Iraq and the other negative geo-political
events worldwide.
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