Posted 2:39 PM by Dil
GOOD PIECE ABOUT INVESTMENT FADS WITH EXAMPLES DECEMBER 2002 - PUMP AND DUMP
In fact, I would make two additional observations regarding major investment themes. When the investment community is fascinated by a major investment theme, outstanding opportunities arise outside the sphere of the major investment that theme.

Whereas we have seen that a major investment theme which is accepted by the majority of investors leads inevitably to an over-valuation of the theme sector and to an under-valuation elsewhere in the investment universe, the timing of the leakage from the popular and expensive sector into the neglected sector of the investment universe is difficult, if not impossible, to predict.

Interest rates will rise in the next few years – possibly far more than what investors now expect as commodity prices have made a secular low, following their more than 20 years bear markets and as the Fed will print money as if there was no tomorrow. In addition, I believe the present stock market rally in the US will shortly run out of steam – possibly between now and January of 2003 and thereafter, we will likely move into a trading range and eventually make new lows – maybe only in 2004 or 2005! Emerging markets should do better next year as in Eastern Europe there is a convergence play while in Asia a modest but enduring recovery is taking shape. Finally, the Fed’s easy monetary policies will ensure that gold will regain its proper place in the investment universe by rising significantly.

Posted 2:31 PM by Dil
NORTH KOREA AND ATOMIC WEAPON
The Chinese are also a likely candidate for such a call, since they may wish to use North Korea in future in the same way the Soviet Union used Bulgaria during the Cold War to carry out dirty jobs. Russia could also be interested in North Korea as an ally, fearing the increased Chinese presence and influence in Far East Russia. Finally, the South Koreans know that unification with North Korea is only a matter of time. So, why not seize the opportunity to have the North bring into the marriage nuclear weapons, given Korea’s small size and military vulnerability when compared to its powerful neighbours such as China, Russia, and Japan? In any event, this new “situation” is most embarrassing for the US, because it makes a war in Iraq more difficult to justify if the US fails to take any military action against North Korea, which seemingly is also interested in acquiring weapons of mass destruction.

Posted 2:25 PM by Dil
SARS
The Spanish Flu (1918-1919)
This strain killed approximately 40 million people worldwide and was first discovered in Kansas. Within two days 522 people were sick and within one week every State in America had been affected. Within one month it had spread across the Atlantic and to Asia and infected about 20% of the world's population. The mortality rate was 2 ½% to 5% and it killed ten times more people than World War I. After about 18 months it completely disappeared.

Moreover, should it become clear that the virus, which causes SARS can be transmitted through the air, airlines would lose almost all their business for a while, since viruses can spread on airlines like a bushfire.

Posted 2:22 PM by Dil
9 APRIL
Given above thoughts, I doubt that the end of the battle of Baghdad will lead to a sustainable equity bull market in the US. More likely, the aftermath of the war will be painful and full of tensions in and outside of Iraq. This will, in my opinion, continue to weight on US equity and bond prices, and the dollar in the long term. Still, the stock market rally, which began in mid March, may have some more life in April, as April tends to be a seasonally strong month for equities.

The historian, Arnold Toynbee believed in a war-and-peace cycle as a consequence of a "Generation Cycle in the transmission of a social heritage".

The famous economist Kondratieff established empirically that the periods of the rising wave (which are characterized by a rise in commodity prices and interest rates) "are considerably richer in social upheavals and radical changes in the life of society (revolutions, wars) than are periods of downward waves".

and the rising wave of the Kondratieff cycle, we should be prepared for a more hostile and bellicose world in the years to come - regardless of how quickly the present military conflict in Iraq will be settled. Moreover, while a rising Kondratieff wave has in the past led to a more belligerent mood, wars in turn also had the effect to create "upside distortions" in commodity and wholesale prices, because wars tend to temporary push up demand for raw materials. In sum, I think that investors should be aware that the late 1980s and 1990s were extremely unusual from a historical point of view since, aside from some minor conflicts, there were no major wars or revolutions. Moreover, the peace dividend following the end of the cold war certainly was a contributing factor to higher stock valuations around the world (declining interest rates and rising profits aside). If the world is now moving into an era of increased geopolitical tensions, then this will be an additional negative factor for equity valuations.
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