28-Jan-03

    Yesterday chief UN weapons inspector Has Blix delivered his preliminary report on Iraqi disarmament. Someone must have gotten to him. His report was the fulfillment of Bush's wish list. Bush now has his excuse to go to war against Iraq.
    Bush's planning reminds me of Hitler's Operation Barbarossa (the German invasion of the Soviet Union in 1941). Hitler should have launched it in March or April. Instead, he had so much confidence in his blitzkrieg (lightning war) that he waited until June 22nd.
    The war did not go as swiftly as Hitler planned, and his forces failed to take Moscow before the brutal Russian winter set in. This mistake was the beginning of the end for Germany.
    Bush, too, has a weather-related overconfidence problem. Soldiers cannot fight in chemical weapons suits during the desert's hot summer months. Bush should have launched his blitzkrieg in November. Now, if Saddam Hussein's forces can hold out until hot weather, they may be able to use their chemical (and perhaps biological) weapons to great effect, inflicting horrific casualties.
    Regarding investment markets, there are two likely scenarios. One is that the Bush plan will work. The other is that the Hussein plan will work.
    Bush's plan appears to be a blitzkrieg that will be over in a month or two. Hussein's plan has the earmarks of a conventional tank-against-tank, artillery-against-artillery battle evolving into a guerrilla war lasting years or decades.
    I believe the Bush plan is already factored into investment prices. If the plan works, the war will be over by summer, and prices of war-related investments will fall back until the next escalation of the war.
    If the war goes Hussein's way, the sky is the limit for war-related investments.
    My guess: a 90% probability it will go Hussein's way.
    Hussein might be killed, maybe even in the opening round, but Iranians will keep the guerrilla war going, to keep Iraq from becoming a launching pad for a US invasion of Iran. Iran is a member of Bush's "axis of evil."
    If the war goes according to the Hussein plan, here are my forecasts for investment prices.
    Within five years I would expect to see:

• Euro, $2.00 • Swiss franc, $2.00 • New Zealand dollar, $1.50 • Gold, $1,500 • Platinum, $1,500 • Silver, $20 • The Big Five weapons makers (Lockheed, Boeing, Northrop Grumman, General Dynamics, Raytheon) up an average 200%. • Fidelity Select Defense and Aerospace Fund, up 200%. • Alliant Techsystems, up 300%. • Raw materials (commodities) in general, up 200%. • Dow Jones Industrial Average, 4,000. • Long term interest rates, over 10%.