Here I Stand

Here I Stand

Thursday, February 24, 2011

Libya and the Bear Market

So this is the market correction that I have been waiting for. The one I posted about a few days ago that hadn't come. The issue with this correction is that I don't believe it is simply a correction for an over leveraged market. It is partially that, of course, but combine that with the fall of the Egyptian regime and the shaky ground upon which a few others stand, and this is has turned into an obstacle to compound a market that has gotten ahead of itself.

Libya is the country that is getting all the news lately, and for good reason – Gadhafi's reign has been a thorn in our side for decades, and a regime change in this region is going to be a welcome addition to US support in North Africa – especially if it comes without the expense of American blood or treasure. Although this may be a boon for the United States, it bodes ill for the market. Although Libya has significant oil reserves, the unrest in this country would not have a catastrophic affect on the oil market as a whole. What is dangerous, however, is the apparent domino affect that these revolutions seem to be having all over the Mid-East and North Africa, and the overall level of fear currently associated with this market. We have already seen oil hit $100 a barrel, and many worst case scenarios see it going as high as $140 in the next few months if this violence is not checked. An increase in the price of oil will be very bad for the improving economy, and will only serve to slow down the recovery, as well as drop stocks in major companies the world over who depend on oil to simply operate, and affect the economies of many developing and emerging markets half a world away from the violence.

I would look for a drop like what we have seen to continue for the next few days, leveling off somewhere around 12000, with a slight spike as investors start to buy back in at a low, but not real gains until the region begins to stabilize and the market is once again comfortable with their supply of oil. Personally, I topped off my tank with gas yesterday and caught the prices here in California right before they jumped. I may try to buy in low next week with some of the capital I have scraped up in anticipation of this correction. I hate to have lost the value that I did this week, but I feel like the market is getting back to itself and once it gets stabilized we can go back to legitimate growth instead of the over speculation that I have been uneasy with these last few weeks.