Postwar Economy Refocuses Attention

The war in Iraq has been thefirst concern of investors forthe past few months. As thenews of Saddam's statue being toppledand new liberation comes tothe people of Iraq, doom and gloomquestions of just a few months agoseem irrelevant. Remember back inFebruary, the constant cries fromHollywood experts that the UnitedStates was entering a quagmire, thatthe United States was fighting a warfor oil, and that Bush was fightinghis father's war?

Despite the rhetoric of armchairgenerals and the constantnegativity being portrayed by thepress, American forces securedIraq in less than a month, liberatedits people, and found our prisonersof war, without a major loss of lifeand property. Yes, every life isimportant, but there were estimatesof tens of thousands of casualtiesand the war lasting months.Again, thank God that the nay-sayerswere wrong.

So, now starts the bigger battleof creating a stable governmentand finding the weapons of massdestruction. Don't fret; the nay-sayerswill be there, saying the UnitedStates is doing everything wrong.Let's try to pull together and focuson the important task ahead andthe positive potential that lies inour economy's reach now.

MARKET ATTENTION SHIFTS

The Dow was pretty stable lastmonth, closing out on April 14around 8360. The daily news ofAmerican victories had less of aninfluence on market dynamics, asconcerns turned to the economy.In fact, on the day that Saddam'sstatue in Baghdad was toppled,markets quickly rose and then succumbedto profit taking.

Now that American troops areturning to diplomatic reconstructionand will start coming home, the focuswill shift to earnings and the economy.And that's where analysts on WallStreet differ. Despite the US victory,many analysts think that any feel-goodinfluences will be temporary.

However, it's this writer's contentionthat the psychology of marketsand consumers may surprisemost. The markets are driven dailyby psychology and feelings. Despitethe belief that these things shouldnot influence business, they do—it'spart of human behavior. Over thepast 2 years, the US economy hasbeen shocked by attacks, a recession,severe stock market declines,and war. Despite all this, the USeconomy has endured. The glass ishalf full, and the good news on thewar may be just the medicine tomake Americans smile. That's not abad thing for business.

STOCKS RESPOND TO NEWS

Retail sales surged 2.1% inMarch, despite the war, and surprisedeconomists. Oil has madesome fickle moves throughout thewar. Altria (MO), the old PhilipMorris Co, saw its stock up anddown on news that the companyhad to come up with $12 billion forbond on a lawsuit that it lost concerningfraud claims on the term"light cigarettes." The judge laterreduced the bond, allowing MO topost just $800 million in cash whileit appeals the award. MO stocks paya dividend of over 8%, andresponded to the good news byjumping close to $4 from the lows itmade earlier in the month. MO hadbeen as high as $42 earlier in theyear and fell under $30, threateningbankruptcy if it had to come upwith the whole bond.

Another company in crisis,American Airlines (AMR), teeteringon bankruptcy, finds its unionsslowly making decisions on compromisesthat should help cut thecompany's costs. Worldwide, airlinebusinesses have fallen apart as thewar on terror and Iraq has convincedconsumers to stay home.

EARNINGS REPORTED

Barron's,

Barron's

Earnings reports started in April.More than half of all reporting companiesbeat their expectations.General Electric (GE), the subject ofa bullish article in the February 24issue of met expectations.The stock, $23 back in February, hasrecently traded as high as $28. also had 2 interesting articlesin press the week of April 14. Onequoted Harry Ernst, president ofErnst Financial Advisors, as saying,"The time to sell is past," and a newstock market recovery could be onthe way. The other piece was a bearishreport on recent Internet winners,including the following: Yahoo(YHOO), eBay (EBAY), and Amazon(AMZN). According to FredHickey, editor of the "High-TechStrategist" newsletter in Nashua,NH,"There's no fundamental reasonfor buying these stocks now."

SmartMoney

Recent research reports offer thefollowing optimistic grades: FirstAlbany considers Fluor (FLR) abuy; Goldman Sachs upgradedPepsi (PEP);Warburg upgraded USBancorp (USB) from neutral tobuy. Elsewhere, magazinereported in its April issue thatjunk bonds were the place to be,and could outpace treasuries byyear-end. In the meantime, it'sspringtime, a time of optimism.

Ernest Caponegro is a NewJersey–based registered representativeaffiliated with FirstMontauk Securities, memberNASD/SIPC. He welcomesquestions or comments at888-786-9507. Any opinions expressed arethe author's and do not necessarily reflectthe opinions of First Montauk Securities orthose of its officers, directors, or affiliatedregistered representatives.