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Bullish On Bush
The president's aggressive stance against terror is rallying markets.


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Larry Kudlow

One of the remarkable aspects of the explosive stock market rally in the U.S., Europe, and much of Pac Rim Asia is the apparent willingness of investors to view the U.S.-led global war again terrorism — and the widening of the Middle East conflict between Israel and PLO terrorism — as good news, not bad news.

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In the last few days President Bush has significantly changed U.S. government policy toward Israel and the PLO, and the markets have applauded, preferring the risks associated with military action over the comforts of ongoing diplomacy. This is an historic change, for both the freedom-loving world and its markets.

Instead of continuing the even-handed discussion of hostilities between the two sides, Mr. Bush has now come down squarely against the PLO and in defense of Israel. No longer is there any sense of moral equivalency. Now, the U.S. is clearly blaming Arafat and his terrorist allies for the region’s woes.

Under the new Bush doctrine, it is clear that the PLO must be regarded as an enemy. Secretary of State Colin Powell has even declined to condemn Israeli retaliatory attacks in the West Bank and Gaza Strip, ending months of State Department equivocation. The freezing of financial assets held by Hamas-controlled groups caps this new administration view. As President Bush put it: “The message is this: those who do business with terror will do no business with the United States or anywhere else the United States can reach. The net is closing. Today it just got tighter.”

In times past, stock markets generally fell when armed conflicts broke out in the Middle East. The threat of Arab military retaliation against Israel from states like Iran, Iraq, and Syria usually spooked world equity bourses. Also, the threat of economy-sinking oil field disruptions and skyrocketing energy prices have typically — in the past — brought down stock indexes globally.

But not today. Things have changed. The U.S. is taking charge by conducting a clear, forceful, and highly-resolved policy to curb global terrorism. The magnificence of U.S. military might is being brought to bear. The U.S. president is unafraid to consistently communicate his vision of smashing the terrorist evildoers. Mr. Bush’s strength of character and high moral resolve to wage this war shines through again and again.

In financial and economic terms, stock markets are signaling their own resolve to be not afraid of any near-term, short-run problems that could occur during this war. And global investors are embracing Mr. Bush’s vision as their own. They have endorsed his strength of character, unyielding moral commitment, and deep-rooted faith in the rightness of the cause to defend freedom and democracy.

In purely economic terms, the U.S.-led war against terrorism will substantially reduce terrorism. It is that simple. That this is a good thing for the world economy must be an uncontested fact. As America painfully learned on September 11, terrorists at least fleetingly had the power to shut down U.S. business, with a nasty ripple effect spreading globally. However, with the successful war effort in Afghanistan, the chances of a repeat terrorist atrocity have been significantly reduced.

Of course, the terrorist threat is by no means eliminated. The potential damage of rogue chemical, biological, and nuclear weapons provide freedom- and democracy-preserving incentives for Mr. Bush’s continued forcefulness in waging war. He clearly understands this. That is why he came quickly to Israel’s defense.

When the Twin Towers fell, this country and the world’s civilized nations instantly identified with the tragedy — indeed, everyone became a New Yorker. In the same way, we are all Israelis now. Yes, there may well be another Israeli-Palestinian peace process, but such negotiations will have no chance of success unless and until the anti-Israel terrorists are rooted out and destroyed. Now that Israel has solid U.S. backing, there can be little doubt that the noose is tightening around Hamas, Hezbollah, the Muslim Jihad, and other Arafat-backed terrorist networks.

In placing these terrorist networks alongside al Qaeda, Mr. Bush has once more clearly signaled his determination to follow through on a broad war against terrorism. This is exactly the commitment that world businesses and stock markets want to see. It means that the odds of keeping business open, and moving rapidly to economic recovery, have improved substantially.

More than any statistical data releases on the economy, no matter how favorable, it is really President Bush’s grand design to preserve freedom and democracy that is rallying stock markets today.



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