The Fall of Baghdad

“Upside” risk has been the Trader’s cry the past 4 Fridays, as shorts contemplate the risk of positive news over the weekend. The wisdom of covering large positions was finally proven prescient since the bell rang Friday:

• Southern Iraq is firmly under US/UK control;
• US tanks take Presidential palaces in Baghdad;
• Chemical Ali killed in air assault;
• The Republican Guard “effectively” destroyed;
• Baghdad slipping with a minimum of “Urban Combat;”

While the war is far from over, the weekend’s progress is reflected in the futures (+2%) this morning.

Instead of focusing on “obvious” news, I wanted to bring 3 under reported items your attention. Yes, the gap up this morning is headline driven, but other positive stories m ay also be contributing to the positive action. Its important to contemplate these items before the contrarian wannabes dismiss today’s rally as an overreaction to good war news:

1) China slaps North Korea: The Washington Post reported that the Chinese government has warned North Korea to “stop provoking the United States while they are at War.” To emphasize this, China closed an oil pipeline to North Korea and stopped food shipments. North Korea got the message (annoying Japan instead). China realized the US had no tolerance for Jong Il during war, and is signaling their plan to be key in resolving Korean issues once the world’s focus shifts from the Mid-East to Asia;

2) Cheering Throngs? Also getting overlooked is some incredible cooperation and intel from Iraqis: Consider 3 operations: The intial “beheading” strike at Saddam, the rescue of PFC Jessica Lynch, and the air attack on “Chemical” Ali. Its doubtful any of these could have been successful executed without collaboration from individual Iraqis. Though expectations of being greeted ala Paris ‘45 were too high – the population has been cowed by decades of intimidation and torment; Somebody on the ground is cooperating, and that assistance is having a major impact on the prosecution of the War;

3) SARS Panic may have peaked: Note that this epidemic has fatality rate of 3-4% — hardly the cause for mass hysteria or obsession we’ve seen in some quarters. Expect this to recede as a major threat over the next few months;

Traders should be cautious not to presume, as some have irresponsibly declared, that the War is over. Its not, and their will continue to be American casualties as the troops shift towards more of a mopping up operation. Note that cornered animals can be the most dangerous, and the ever-present threat of bio/chemical attacks remains.

None of this means valuations are cheap, but it does support a 10-15% rally over the next 90 days. Last Monday’s lows remain your new stop losses.

Random Items:
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Quote: The only reason for time is so that everything doesn’t happen at once.
– Albert Einstein, 1879 – 1955