Business News

Wall Street ignores Libya

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by Peter Switzer

Wall Street ended up nicely over the weekend and that’s despite the fact that the Libyan crisis looks like it’s getting worse not better. So, what gives?

Last week the Gaddafi attack on Libya took the Dow Jones index down 2.1 per cent, the S&P 500 down 1.72 per cent and the local S&P/ASX 200 was off 1.8 per cent.

Of course oil was the real culprit as if this virtual civil war was going on in a remote African country with no precious resources the world needs, then I reckon global markets would have headed up this week.

Wall Street weekend

Over the weekend, the Dow was up over 62 points or 0.5 per cent while the S&P 500 put on a big 1.05 per cent, which does suggest that the Libyan nerves are easing.

However, fear is still in the air with the VIX or fear index up about 17 per cent for the week.

Oil closed below US$100 a barrel — US$97 in fact — after Saudi Arabia said it would put out more to cover the reduced supply because of Libya.

It would be foolish to presume we’re out the woods with Gaddafi but it’s intriguing that the US market could put on a nice rise.

And this happened even though fourth quarter US economic growth was adjusted down from 3.2 per cent to 2.8 per cent. Against this, the Reuters/University of Michigan survey of consumer sentiment index rose to a level not seen since January 2008, which arguably was before the world was GFC’d.

Inflation concern

One of the best observations on the US economy came from Richmond Fed President Jeffrey Lacker who said:

"Recovery has been well established, growth is going to pick up. At this point in the business cycle we need to withdraw monetary policy stimulus at some point in order to prevent inflation from rising, and it's often at this stage that inflation picks up."

When a leading figure of Lacker’s standing starts worrying about inflation, it’s a sure sign that an economy is out of recession and deflation territory.

Coming up

In the week ahead, there’s a load of economic data including personal income and spending, the Chicago purchasing managers index, pending home sales, car sales, the ISM manufacturing index, chain store sales, jobless claims, productivity, the ISM non-manufacturing index and the all-important jobs report.

Against this, Gaddafi and his Libyan madness will represent the most significant headwind.

Buffett’s view

One final note for optimism: Warren Buffett told his shareholders that he and his business partner Charlie Munger concluded that they see "a general business climate better than that of 2010 but weaker than that of 2005 and 2006".

So if you are in the bears’ camp, you’re opposing Warren Buffett — that is a courageous position to be in, given his record with investing!

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Published on: Monday, February 28, 2011