“Does Iraq Hold the Key to the Markets in 2006?” was one of the Forbes on Fox topics Saturday morning (12/31/05). Here is a summary of my remarks:
Iraq developments are very important for the U.S. markets next year. My view is that the investment fundamentals (growth, profits, interest rates, and maybe even lower dividend and cap gains tax rates) are very, very strong, and that investors should be committed to equities for next year. The only thing keeping the market from reflecting the strong fundamentals is people’s fears. Investors are sitting on $2 trillion in uninvested cash today.
Bad events in Iraq could keep investors in their bunkers for a little longer. If that happens, I will buy more stock.
Iraq, by the way, is not going to bloom flowers overnight. There is too much strategic power and wealth there (under the sand), and not enough strength to defend it. Somebody’s army (ours, the UN, China’s?) is going to camp out there for a long, long time. But the real positives are showing up in gulf region stock and property markets; oth bup 200%-300% in the past 3 years. (My friends at Global Investment House in Kuwait are a great source of data and analysis about these markets. I get them delivered to my desktop every night to read each morning.)
In the U.S., it’s all about fundamentals versus fear. Fear is temporary; fundamentals always win. The fundamentals are great for profit growth and low long term interest rates. It’s only a question of when that shows up in the market as rising prices. Stay invested.