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The Gaddafi Effect

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by Peter Switzer

The Gaddafi Effect prevails with Wall Street again spooked by the spectre of a drawn-out Middle East contagion, even if the Libyan crisis is resolved quickly. The question becomes who is next and for the sake of the world economy everyone hopes it isn’t Saudi Arabia.

Oil got as high as US$107 a barrel until a BBC report suggested the Colonel might leave Libya but this has been refuted by American officials.

The best news came from a Reuters report which said a prominent member of Libya's ruling establishment requested talks with rebel leaders which suggest that a Gaddafi compromise could be on the table.

In true rebel form, the request was denied and that explains why the S&P 500 finished down 11.02 points, or 0.83 per cent, to 1310.13.

Contagion effect

And while Libya is a worrying issue, the greater economic concern behind the fate of the Libyan people who are enduring all of this is the contagion effect.

“The major risk remains the prospect of the political unrest spreading to the Gulf producing region," Caroline Bain, an economist at the Economist Intelligence Unit, told Reuters. "However, even if there is civil unrest in Saudi Arabia, it is not a given that oil production will be affected."

And that’s the hope we have to cling onto, but it’s the market question mark that will dominate share prices for coming weeks.

Buying opportunity

In the game of investing it’s important to separate that which is important from that which is interesting. I think it’s important to note that the Dow kicked off in early trade and shot up 70 points before oil prices took centre stage.

The jobs figures last Friday were also important and it confirms that when this contagion in oil countries sorts itself out that markets will resume their northwards march.

Of course, this could all go pear shape but I’m putting this one out of my mind. I see this as a buying opportunity to buy good companies you want to hold but as I said yesterday, your timing will be important. I think the waiting game could still pay dividends.

More to come?

The greatest problem might be that sorting out Gaddafi might only be the second step after the Egyptian crisis. The question is how many of these tin pot dictatorships and Islamic fiefdoms will have to be changed before we can concentrate on making money on the markets?

For the sake of the people in these crazy countries, let’s hope it’s done quickly and with minimum pain but that’s easier said than done.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Tuesday, March 08, 2011

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