The Stock Trader's Almanac

[Stock]

Volume 7, Number 2, August 2007

Looking Forward
The second half of this year may prove to be extremely difficult.
Historically the president in power primes the pump
between the pre-election and election year. Mr. Bush appears to
have little political capital remaining. His own party betrayed
him on immigration, the Democrats are barraging the administration
with subpoenas and inquiries and U.S. public opinion continues
to languish. President Bush’s latest approval rating of 29%
is the lowest of his entire administration, according to the Gallup
Organization. As outlined above, there is significant cause for
concern on the Street both domestically and geopolitically.
Year-to-date the Dow is up 11.6%, the S&P 9.5% and NASDAQ
performing best tacked on 12.1%. The market seems ripe
for at least some sort of pullback. A 10% retrenchment would
put the averages in the neighborhood of Dow 12,500, S&P 1400
and NASDAQ 2450. Even a 20% bear market would barely
make a dent.

The good news is that there is potential for a rapid and significant
recovery. Historically after the markets are bruised in post-war
inflationary environments they have surged over 500% following
the other major wars in the last 100 years (see June 2007, January
2006 and February 2005 issues). The timing and magnitude of that
next rally is too far off to accurately predict, but the sooner we win,
lose or draw the Iraq conflict, the sooner we can get back to the
business of being the biggest and best market in the world.

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