Market Overview

How Will End of Iraq War Impact the Economy?

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It might be a classic case of a negative result emerging from a positive event.

Today marked the official end to the Iraq War — a nine year odyssey that cost trillions of dollars and ruined hundreds of thousands of lives. The war began when George W. Bush and his administration lied to Congress and to the United Nations, convincing both groups that Saddam Hussein had chemical weapons that he was willing to sell to terror groups.

These lies prompted the country to hesitatingly allow Bush to send troops into Iraq. Alas, nine years later and not a scrap of evidence exists to show that Saddam ever had WMD or sold them to any terror groups. And now, the troops sent to fight and die in that desert wasteland are headed home.

By the end of the war, a million men and women had laid their boots on Iraqi soil, fighting a war that never should have been. And now that they're coming home, they do so to a place that may not have a place to put them to work. Unlike the end of WWII, which saw an economic boom that led to the so-called baby boom, the end of the Iraq War sees its veterans return home to high unemployment and limited opportunities at home.

Short of sending them back out to another battlefield, or permanently enlisting them into a larger standing army, what happens to the veterans of Iraq now that the war is done?

For one, the government doesn't sound so positive that our work there is done. Defense Secretary Leon Panetta makes it sound like perhaps another mission will be in order for Iraq's veterans.

“Let me be clear: Iraq will be tested in the days ahead — by terrorism, and by those who would seek to divide, by economic and social issues, by the demands of democracy itself,” Panetta said. “Challenges remain, but the U.S. will be there to stand by the Iraqi people as they navigate those challenges to build a stronger and more prosperous nation.”

Does that mean a return of troops if conditions deteriorate in the country? Might we really go back for Iraq, Round Three? Even filmmakers know enough to stop at a sequel, and they're punished harshly if they don't stop. (See also: The Godfather, Part 3).

That seems unlikely. Still, what happens when all these troops come home and find the want ads lacking for employment opportunities? Typically, the government is a strong hiring force for ex-military employees, but government at all levels are (unwisely) cutting back amid the recession. Will this phenomenon have an impact on the markets and the economy as a whole?

My guess would be that it will have a mild, but negative effect, on employment numbers. One of the interesting parts of the American economy is that we hire a lot of people in small mom-and-pop businesses, startups, and even small cap public companies. If you don't want to wait for the news to pass you by, you can always learn more about which small caps are good investments with Benzinga's Winning Stocks Under $5 product.

If you are willing to wait, you're likely to see an increase in hiring in those smaller shops, particularly among veterans. I think this might help keep the unemployment data from getting too ugly, despite the influx of soldiers.

ACTION ITEMS:

Bullish:
Traders who believe that the end of the Iraq War will be a net gain for the economy might want to consider the following trades:
  • Invest in the entire market. The SPDR S&P 500 (NYSE: SPY) is a popular ETF that tracks the market. The theory here is that an end to the war means less war costs, and helps the economy out by spending less on death machines and bullets.
  • The sight of unemployed veterans might actually spur BOTH parties to do something about the unemployment crisis. As much as Republicans hate to spend money, they're not eager to be seen as anti-veterans. Congress could pass a comprehensive jobs package that will help vets, which could increase stocks in sectors like housing and construction.
  • Companies who have been sitting on cash could dop the patriotic thing and hire returning veterans, creating jobs in the process. They could do so, especially if tax incentives to do so are there. This could again boost just about any stock you might think of.
Bearish:
Traders who believe that the end of the War means extra stress on the shaky economy may consider alternative positions:
  • Let's face it: if the vets come home and increase unemployment, the pressure will be strong for SOMEONE to do SOMETHING. Congress and Obama are unlikely to strike a deal. That leaves one man to do something — Bernanke. Look for the Fed to do some QE3 and watch your assets rise.
  • Did someone say QE3? Buy gold. Buy Gold ETFs like SPDR Gold Trust (NYSE: GLD). Buy gold mining companies, like Goldcorp (NYSE: GG). Basically, if QE comes, buy gold, because inflation is around the corner.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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