Bombs Won't Liberate the Market From the Bears

If everybody knows that the U.S. plans to invade Iraq within the next 30 days, and everybody knows that stocks will explode higher when the cruise missiles launch, then why the heck hasn't the market stabilized already as smart money floods in to anticipate the inevitable?

The answer appears to be twofold: Under-the-radar buying by the smart money is keeping the market from declining farther, faster. But the smart money isn't purchasing with abandon, because it doesn't buy the consensus view that a start of war would kick off a sustained bull market.

The view among veteran investors who have played the bear market correctly so far is that an American invasion of Iraq would end the uncertainty about when and whether hostilities will begin, kicking off a "relief rally" in equities likely to last one to six weeks. But they believe that this speculative advance is unlikely to spell the end of the millennial bear market, and it should ultimately be considered an opportunity to unload stocks rather than to load up.

Said Mr. P, a 30-year macro hedge fund manager who has anonymously contributed insights to SuperModels for the past three years: "Our view is that you've got to be buying now, a little every day as the market goes down, to play for the reversal. And that 75% of your returns for this year will come between the start of the war rally and May."