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2006-07-13 :: 1973 War Redux?

I haven’t posted in 48 hours as I’ve been watching the developments in the Israel / Hamas / Hezbolah / Lebanon / Syria conflict.  This is ugly and it has the potential really, really, turn the market south.  The 1973 War was the proximate cause of the Arab Oil Embargo against the west.  There seems to be a lot of fear in the market that if this situation escalates further, we could see a serious disruption in oil flows from the mideast.  That could lead to the $100 oil that Goldman Sachs has forecast.

I am seriously concerned about what is going on.  As in 1973, the US was the only country in support of Israel.  In today’s UN Security Council the US vetoed a resolution that the other 14 countries supported in condemnation of Israel’s response to the rockets hitting Israeli territory from Gaza and Lebanon. 

If this is deja’ vu all over again, then there will be very few places to hide in the markets.  The defensive stocks that are trading at twice their growth rates will sucker in a lot of mutual fund money and money from novice investors that follow that investing rule of thumb, only to see their thumb stuck somewhere other than in a pie pulling out a plumb.

Energy, gold, cash and long bonds will be the few areas that  rule if we see a full scale war the scope of the 1974 war. 

Oh, I am selling TEVA, too.  Its had a tough time along with most  of the health sector lately, but having money in an Israeli company – even one with fundamentals as good as TEVA – is just not the best plan.

In a market like this, we will continue to pick away at small buys in my favorite areas.  We will likely start to add additional gold postions – via streetTracks gold shares ( the miners are falling with the rest of the market – as well as strengthening our energy holdings to emphasize oil in the US and Canada.  In selected accounts we’ll also add long bond positions, via mutual funds, as appropriate.

Keep your eyes on the stories coming out of the middle east.  It could hold the direction of the market for the next several months, or longer.

More later!

Mark