For some war war is better than jaw jaw

Clearly it is impossible to make any intelligent comment on market direction given that most of it is influenced by scrolling headlines from the Gulf, only some of whom are even passably accurate

A report last week which said that Iraqi troops had been seen in gas masks sent the Dow into a downward frenzy but whether any equity index trades up or down is fairly irrelevant at the moment.

What's less irrelevant is how much the war is costing the US, as Daring Don Rumsfeld looks for $63 billion in "supplementary" funding to keep the show on the road. Not surprisingly, Congress wondered whether or not this would see the conflict out but Don couldn't give assurances that he might not need a few more billion later.

Presumably, though, a refusal to keep spending money would put Congress in the role of being unpatriotic and everyone's afraid of being labelled unpatriotic in the States.

Nevertheless Congress has a bit of thinking to do. Estimates on the cost of this war vary wildly (just like the reportage) but go up to$150 billion for the campaign and $30-$100 billion for reconstruction. The first Gulf war cost $61 billion but that bill was shared between a host of nations. In choosing unilateral action, the US will be footing most of this bill itself.

But it's footing a bill against pre-war projected deficits of $300 billion for this year (even though the administration originally anticipated surpluses) while George W is pressing on with his tax-cutting programme which includes what can only be considered as reckless reductions of $670 million for 2003.

Regardless of how long this war lasts and how much it eventually costs, the effects on the US economy as funds are diverted out of the domestic arena and into the military will be very damaging. The only way of raising funding is to issue more government bonds. But investors will look for higher returns on those bonds and may well decide that there are better opportunities elsewhere. That's why the dollar continues to sink like a stone.

But some domestic US companies are expecting to do well out of the peace - if that ever really comes. In any event those who have pitched bids for the reconstruction of Iraq have seen their share prices move ahead. Pick of the crop, of course, is Halliburton where Vice-President Dick Cheney was CEO for five years (and from which he still gets consultancy fees of around $1 million annually). The firm's 52-week low was $8.97 last July but it's trading around $21 now.

A major subsidiary of Halliburton, Kellogg Brown & Root has already been given the contract to put out oil-field fires. KBR has existing contracts with the military so it may not be surprising that they're ready to rock and roll. It's good news for Halliburton and KBR - the subsidiary is actually due to be put into bankruptcy protection as part of a plan to settle an outstanding $4 billion asbestos-related claim.

Usually contracts like this are put out to a general bid but the current administration granted a waiver in January which allows government agencies to choose companies for those Iraq reconstruction contracts. Naturally critics are saying that the jobs are being given to companies with links to the administration (which is certainly true - the prime contenders, Fluor, Parsons, Bechtel and the Washington Group are all generous Republican donors) and that the lack of detail specification for the work as well as the absence of a competitive bid means that those companies are being allowed to set their own price.

That price may prove to be expensive (almost certainly true too as we all know that lack of competition sees prices pushing higher). KBR previously did work in the Balkans for the army but the US General Accounting Office found that costs hadn't been "contained" as well as they should have been. That work came to $2.2 billion.

There's no doubt that US companies are lobbying strongly for a major portion of all of the reconstruction contracts and that the administration is likely to accede to that lobbying because one result of shoving all the work into domestic corporations will be to help stop the current US skate towards recession.

There have been a lot of comments about conflict of interest in the economics of this war but so far the only casualty has been Richard Perle, the chairman of the Pentagon Defence Policy Board, who finally resigned last week. He was advising Global Crossing, a US fibre optic network operator which is in the process of being acquired by Hutchinson Whampoa. The deal itself is being looked at critically by the Committee on Foreign Investment and one of the members is Daring Don himself.

It's very easy to be cynical about the awarding of big-ticket contracts to certain companies but it happens all the time. The potential rewards are so great that it's difficult not to look at Rumsfeld, Perle and their cronies and not feel that, however things pan out, they're never going to be on the losing side. Not that Daring Don has to worry anyway. In his financial disclosure documents he puts his net worth between $60-$115 million. Which would buy you at least one decent warhead.