Real Wealth #048 06/08/2006
Don't Be Fooled by the Market's Overreaction
By now I'm sure you've heard the news from Iraq...
Al Qaeda's leader in Iraq — and the acknowledged second-in-command to Osama bin Laden — Abu Musab al-Zarqawi, has been killed along with several of his lieutenants.
There's no question about it — this is good news in terms of dealing al Qaeda a significant setback. After all, al-Zarqawi was a man referred to as "the prince of al Qaeda in Iraq" by bin Laden himself.
But while it's important to recognize this news as significant...let's also be careful NOT to be fooled by the market's clear overreaction to it today.
Gold was down more than $10 an ounce early today...oil prices dipped below $70 a barrel...and the dollar was markedly higher.
Listen, we've said all along that there would be wild swings in this bull market — and that's exactly what we're seeing right now.
Even with al-Zarqawi's death, the fundamentals are still very much in place for a long-term "hard money" bull market...
* Despite today's move, the dollar is still fundamentally weak...
* Geopolitical tensions remain high...and the likelihood of a major retaliation by al Qaeda is now extremely high...
* And there remains the very real possibility of major conflict in the Middle East...
Which brings me to my next topic: Iran.
Much like today's action in the markets, the recent events involving Iran should be met with caution.
Some are beginning to suggest — as was indicated in a Dow Jones wire story yesterday — that, "There is a feeling among traders now that Iranian rhetoric on nuclear enrichment may have been all along aimed at exacting concessions from the West."
This is complete nonsense.
Iran's intent today is the same as it's been all along — to get its hands on a nuclear weapon.
What's going on right now is nothing more than Iran buying more time...while the U.S. gives the appearance that it has bent over backward to achieve a peaceful solution.
So you'll forgive me for not buying into the idea that Iran's leaders are going to sit down at a table with the U.S. and the European nations, shake hands and agree to end their pursuit of a nuclear weapon.
That's just not going to happen.
And when these talks fail to produce an agreement — or, if weeks after an "agreement" is reached, things suddenly turn ugly again — oil prices will once again start climbing rapidly.
I'd like to leave you today with an op-ed piece from today's Washington Times that was written by New Jersey congressman Jim Saxton. In this piece, Saxton is absolutely on the mark when he says,
"But the most alarming threat posed by Tehran is not its mischief-making in Iraq or in the Middle East, but the ideology which drives the regime to pursue these policies...President Mahmoud Ahmadinejad claims to have received visions from God, denies the Holocaust occurred, and promotes exporting the principles of the Iranian revolution. His ideological predilections make me question whether Mr. Ahmadinejad could be deterred from using nuclear weapons as a result of realpolitik diplomacy or a conventional sanctions regime."
To read the entire piece, follow the link below...
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