While the threat of war in the Persian Gulf has held the equity market hostage, it would be incorrect to assume a resolution of this crisis would have any meaningful and lasting effect on the US equity market. Much has already been written about the market's "disconnect" with the current US economic recovery, which given the recent data seems to support the consensus estimate for 2.5 to three percent GDP growth this year. With money supply expanding, there is also the possibility that growth could accelerate later in the year.

At the beginning of the year, it seemed that positive equity returns were almost a fait accompli in 2003.

The mantra often heard then was that the equity market had not suffered four consecutive years of negative returns since the Great Depression.

By comparison, the US economy is in much better shape today, but this was hardly a good enough reason alone to buy stocks aggressively.

Nevertheless, the growing threat of war seems to have only marginally dimmed this consensus view.

Today, analysts are saying that the equity market would be in positive territory were it not for the Iraqi crisis, instead of declining steadily as it has since the beginning of the year.

The rallying cry from Wall Street is still that the glass is half full. Some trading desks have dubbed this the "Coconut Trade" and it goes something like this.

The military campaign, much like the Gulf War in 1991, is expected to be a short one, after which uncertainties will subside quickly and the economic recovery regains momentum. This, the logic goes, would provide a fertile ground for earnings and precipitate a rally in the equity markets. This is all good news, if one could count on it to be true, which too many people are.

The respondents in a survey by the analysts at International Strategy and Investment in New York, by almost a margin of 4-1, believed that the equity markets would enjoy a meaningful recovery following a "quick war".

Such a consensus opinion usually means expectations are vulnerable to disappointment, which for some is a tell tale contrarian indicator to go the other way.

The view ignores distinctions between the two events, one of the most important ones of course being that this time around this military campaign calls for the actual removal of the Iraqi regime.

The lack of Arab support and the rancorous split within NATO over the crisis further underline the enormous stakes in this crisis.

There are also important differences in terms of where the equity market was in the cycle in 1991.

Today's bear market was brought on by the collapse of one of the biggest asset bubbles in history. The story in 1991 was more cyclical in nature.

Excess demand lead to soaring inflation, which pushed US interest rates over to almost ten percent in May of 1989, before the Fed began initiating a series of rate cuts that left US interest rates at three percent by September of 1992.

At the end of December of 1990, US interest rates had fallen to seven percent after the S&P 500 had suffered a steep 20 percent decline earlier that year. Compared to today, the equity market was actually on the road to recovery when the war started in January of 1991.

By contrast, today's market and economic problems are quite different in that this is a supply-side led slow-down.

The massive over capacity generated by the excesses of the "bubble economy" caused capital spending to collapse and obliterated pricing power to the point that deflation was a much bigger concern than inflation. US interest rates today lie at 1.25 percent and have been cut 12 times since the market started to fall in March of 2000. It means that fiscal and monetary measures have all but been exhausted in an attempt to revive the economy.

Yet, the S&P 500 is barely five percent off its six year lows, which is a total decline of more than 43 percent from peak of the bubble in March 2000.

A more worrying aspect that has come to light recently is the re-emergence of inflationary pressures in the US, which at the wholesale level saw its biggest one month increase in 13 years in January.

Although there is certainly cause to be hopeful about the prospects of both the economy and the market this time around, investors should not be lulled into the false notion that a quick resolution to the Iraqi crisis will be the silver bullet that fells this bear market.

A return to fundamentals would be welcome but looking back at 1991, one can see that the respite in both US equity market and the economy was actually quite brief in the aftermath of the last Gulf conflict. Overlay that with the fact that a quick resolution to today's crisis is far from a certainty and the economic uncertainties that still remain, as well as the lack of transparency in earnings, and the glass starts to look half empty.

In the longer term, the emergence of rogue states and shadowy figures perpetuating terror around the world has led many to believe that the "peace dividend" the US economy has enjoyed since the end of the Cold War may also be over.

The whole notion of long term investing in stocks has come under serious scrutiny, particularly after the definitive recent work on the subject by those smart chaps at the London Business School, Elroy Dimson, Paul Marsh and Mike Sauton in their book "Triumph of the Optimists". Investors should take a reality check before plunging in, especially since stock picking is so vital in this current uncertain environment.

Furthermore, there are a lot of indications that the "smart money", that would be those evil hedge fund managers that can go short the market, have been adding to their net short positions.

Be careful that the Coconut Trade or the rally that is expected to follow a war does not turn out to be another bull trap.

Kees van Beelen is a portfolio manager and a member of the investment policy committee for the Bank of Bermuda.