Excerpt >>>>SAN FRANCISCO (CBS.MW) - The financial world's obsession with war headlines increases the risks of an auditorium-clearing market decline, market strategists say. "For investors who are long, our analysis of option prices suggests that the downside risks are greater than the upside potential, and the war rally, which has not been fully reversed, only reinforces that," says Stanford University economics professor Eric Zitzewitz. "So in that sense, the stakes are higher." The almost 4 percent decline in equity indexes earlier this week was an example of "when the very best-case scenario -- a complete walkover victory, with mass surrender and no guerilla warfare after the fact - begins to appear much less likely," Zitzewitz says.
Those who see the dollar, and with it most U.S. stocks, resuming their decline are looking past the war. Such skeptics (and I am one of them) base their outlook on financial developments such as disastrous first-quarter profits, accelerating deficit spending in Washington and a current account shortfall that is running 5 percent of economic output. "Stocks are still trading at historically high multiples, with the S&P 500 (SPX) trading at 30 times current GAAP earnings, 22 times 2003 estimates and nearly 20 times 2004's estimates," says Mike Darda, economist at Polyconomics Inc. in New Jersey. "Viewed another way, total equity market capitalization as a multiple of after-tax profits remains more than 30 percent over its historical mean." Now, with the Senate reducing the size of the Bush tax cut to $325 billion from $700 billion, Darda, a supply-side economist, says the risks of a steep stock-market decline are increasing. <<<<<
Personally I'm going to continue to follow the circus at CNBS. I'm certain the mainstream will eventually prove correct, while us 'Fringe Lunatics' will undoubtedly be wrong.