The U.S. appears going to war, and since markets rallied on war in January 1991, this time around in 2003 -- almost in a "mind-game" fashion -- the markets appear to have launched an "anticipatory" rally even before the war actually starts. Silliness abounds as shorts get squeezed.

But 2003 is not 1991. In January 1991 1-month LIBOR stood at 6.9% and the Fed had far more flexibility to goose the economy through subsequent rate cuts. By January 1992, 1-month Libor had fallen to 4.4%, and the twin real estate and S&L crises of the time were quickly being patched over. By January 1993, 1-month LIBOR had fallen to 3.2% as the Fed rushed to prop up the entire banking sector (including Citibank at sub-$10 a share) with a very steep yield curve.

In 2003, by comparison, the consumer sector is in far worse shape in terms of its total debt burden than in 1991, and the Fed has far less maneuverability with 1-month LIBOR already at 1.2%. Money propping up the economy from mortgage refinancings of the past two years has slowly been spent, and a softening in real estate prices -- both commercial and residential -- appears to be just beginning, not ending.

To draw any conclusions about subsequent market behavior "once the war starts" from 1991 model is a dangerous and stupid endeavor. The world is hardly ever as simple as Americans hope it to be, and all the same good intentions exist in Mr. Bush as existed in Mr. Kennedy and Mr. Johnson as they escalated the Vietnam conflict. While America's political leaders have certainly learned over the years not to go into military conflicts in a half-hearted half-baked way, we have not learned that America cannot simply dictate to the rest of the world how they should live, and what they are and are not allowed to do. All good intentions to avert a bigger catastrophe later with even greater chemical or biological terrorism, Mr. Bush stands at great risk at present of creating an even more pulpable quagmire in the Islamic world.

So it is that we also now sit atop our March 18-19 PEI cycle date -- a date long anticipated by us to be a market high of some sort -- but with much frustration. We certainly did not anticipate to achieve a rally high via the late-blooming one-week moonshot just experienced.

But we will not be sucked into chasing it. Lots of markets became over-extended in their trends during January and February -- including the euro, gold, and equities. But the world economy is still sitting atop a minefield of debt problems, earnings problems, and pension fund accounting problems. No new bull market is on the horizon this time around.

Technically, we'd expect 8265 to contain the Dow in the near-term, and the current "shelf formation" exhibited in the chart above to eventually give way into a "waterfall-like" decline that could see the Dow eventually reach 5800-6100 range. Late July remains a cyclical period of much concern in our minds.

Note to subscribers: Wanting first to witness and carefully watch the price behavior of the markets through our March 18-19th cycle date, this month's subscriber-only letter should be forthcoming by March 24th.

Non-subscribers are invited to access our February 2nd article, "Gentle Early Spring, but Rough Summer: Focus on Asia for Now," together with other past articles, by signing up for a quarterly Sandspring.com subscription below.

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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. The opinions expressed are not intended as specific investment advice, and simply represent our personal views offered here under our right of free speech. Sand Spring Advisors is a NFA registered CTA/CPO, but is not a Registered Investment Advisor. We do not directly trade any client funds. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.