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Oil beats jobs
by Peter Switzer
Trying to work out what I need to say to regular readers takes me back to the invasion of Kuwait by Saddam Hussein in 1990. And this takes me back to the bigger-than-life Rene Rivkin and how he backed himself big time.
The scene was the Park Hyatt at The Rocks and TV journalist Jane Hansen on A Current Affair quizzed both Rene and myself on the economy, which was struggling with the hangovers of the 1990 recession and what the stock market might do.
This was safe ground for me until she asked about the Kuwait invasion. As an economist I excused myself arguing this was a geopolitical question mark and I was not qualified to know Saddam Hussein, his capabilities, the difficulties of fighting in the desert, etc.
On the other hand, Rene dived into it. He said there would be a quick victory and the stock market would shoot up as a consequence. He got it nearly 100 per cent right and I learnt from him you have to have a go in this commentary caper.
That said, you need something to hang your hat on. At the time, I reckoned Rene had guessed and got it right but I think a committed investor and broker, as he was then, would have done his homework and if geopolitical challenges were there, he would have tried to get a handle on it before anyone else.
Therein lies a market opportunity.
My homework on Libya and the associated protests in the oil contagion world suggests it will only be an economic challenge if the price of oil goes to US$150 a barrel for a period of six to 12 months. That could breed a global economic slowdown and the stock market would reflect it.
As I have been arguing, the big market movers are the pluses from the US recovery versus the negatives of the oil supply challenge.
Over the weekend, the Yanks got a good jobs number with 192,000 new positions created and this saw unemployment head under nine per cent to 8.9 per cent.
Economists expected around this number but oil took the market down.
The S&P 500 gave up 0.74 per cent on the day but was up 0.1 per cent for the week and is up five per cent for the year.
Unfortunately, all of the fighting in Libya sent oil futures to the highest intraday price in nearly two-and-a-half years. And the market didn’t like it. US light, sweet crude was up almost seven per cent this week to $104.43 and this is spooking the market.
There will be a run of economic data in the USA but none of this will compete with Libya and so the market’s direction is in Colonel Gaddafi’s hands!
And to keep the jobs story into context, the USA lost 8.7 million jobs during the GFC and so far has only recreated 1.25 million.
Historical omens
However for those who like historical omens, CNBC showed that March is the fifth best month of the year for the S&P 500, up 63 per cent of the time with an average move of 1.1 per cent.
- In the past 20 years, the S&P closed up in March 13 times, or 65 per cent of the time.
- Seven out of 11 times that February was positive in the past 20 years, March was also positive, posting an average gain of 2.7 per cent.
- The best March in the past 20 years was recorded in 2000 with a gain of 8.8 per cent.
- The average gain during the 20-year period stands at 1.1 per cent.
So March has a tendency to go up especially if February has delivered, but Libya and Gaddafi don’t come along all too often in this month.
Personally, I see it as a buying opportunity for a long-term investor but the question is when do you buy? I think playing the waiting game could pay dividends.
Published on: Monday, March 07, 2011
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