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The capture of Saddam Hussein is a huge win for the Bush administration and British Prime Minister Tony Blair.
There will be a growing consensus -- despite the horrible deaths of U.S. military in the occupation of Iraq -- that the means of the coalition's occupation have justified the ends, now that Saddam has been captured.
As a Democrat, I carefully listened to Massachusetts Sen. John Kerry, a Democratic presidential candidate, interpret today's events. Speaking on
News, Kerry said Bush still needs to involve the world community in the struggle in Iraq. "I've consistently said there is a better way to do this. And the better way to do it is to build a legitimate coalition. It is still not a wise idea for the United States to proceed forward, almost alone."
I have to offer quite candidly that he sounded disingenuous, and his responses were quite transparent and politically motivated. Look for Kerry's rivals, both Republican and Democratic, to replay his comments.
That said, regardless of my interpretation of Kerry's comments, the fact is that the capture of the Iraqi dictator virtually guarantees a landslide victory for the incumbent president, almost regardless of the vicissitudes of the economy as we move closer to the November election.
The same applies to the prime minister's popularity in England, which has been somewhat on the wane as casualties began to accumulate in Iraq this year. And, fortunately, the indignity of a desheveled Saddam Hussein being examined by a medical doctor will weigh on whatever supporters and followers he has in Iraq and outside the country.
As for markets, the immediate reaction on Monday will likely be a short squeeze on the U.S. dollar and a marked decline in energy prices. Currently, the short U.S. dollar and long crude oil trades are extremely crowded, which will serve to exacerbate the opening trades on Monday. To be sure, the immediate response in the equity markets will be positive. But it is less apparent what the investment implications might be after the initial responses, especially in light of the recent equity rally leading up to Saddam's capture.
In terms of market sectors, transports should be the greatest beneficiary, with financials and dollar beneficiaries the least to be favorably impacted.
Saddam Hussein's capture will have little impact on my negative outlook for equities, as the dictator had no relationship at all to the structural issues I have repeatedly mentioned over the last several months (a spent-up consumer, sharply higher twin deficits, a world without stimuli, etc.)
If anything, the euphoria created by Saddam's capture might create a degree of complacency and confidence on the part of equity investors, which might set the stage for a more consequential intermediate-term top than most expect.