Wall Street bets on no quick pullout from Iraq

It's often said that financial markets hold no values. They strive only for maximum efficiency—making the most money with the least exposure to risk. If this is true, the war in Iraq is far from over.

Defense stocks soared on Wednesday ahead of the news that Defense Secretary Robert Gates would ask for an additional $45 billion to fund wars in Iraq and Afghanistan in 2008. This is on top of the $145 billion Gates was already authorized to spend, bringing the total cost of the war next year to $190 billion. The AMEX Defense Index, which tracks the financial performance of defense companies, has gone up 47 percent since September, 2006. Obviously, traders see little risk in defense investments even as Washington endlessly debates when troops should be pulled out. 

Gates's request does not come as a surprise. What is surprising is Wall Street's expectation that defense spending will remain high well after President Bush leaves office. One analyst predicted defense spending of $170 billion in 2009 and $150 billion in 2010. Some of this will be spent on replacement equipment. But defense companies' continued record-breaking performance, even in an uncertain economic environment, is bad news for those hoping for a quick pullout.