In terms of recent events, the on-going chaos in Libya has been causing quite a stir. Its president has resided in the position for 42 years (!!!) and not surprisingly has resorted to violence and military power to suppress the people. This has been causing quite the stir in the markets and I thought I’d just add my two cents on what kind of impact it has / is going to have.
One thing that is interesting to me is the momentum the Middle East has been on in terms of protests against the government. Even if the situation in Libya stabilizes, another incident may not be too far away. Most times, these sorts of events tend to be negative indicators for the market but most of the drop I feel is due to investor fears and mainly not following from the fundamentals. Because of this, I think volatile events like this are a good time to buy, particularly during a day where a decrease in the market is likely due to news associated with Libya.
There are certain scenarios that can play out though that may throw this for a loop. For instance, trade sanctions currently being enforced against Libya will cause spikes in prices of commodities and the situation can even worsen. This will cause downward pressure on the US economy and it is unknown when prices will go back to normal if at all even if Libya’s situation stabilizes.
Another cause for concern is how the armed forces, in particular for the US, will react to continued violence and armed resistance. By itself it may not cause much impact on the global economy but it’s possible that its influence in the Middle East may be enough to send other countries around it into chaos. So the black swan in this case is the particular set of events that have catastrophic consequences for the global economy. Personally, I wouldn’t put too much merit in this sort of idea unless the situation remains stagnant or continues to get worse over an extended period of time.
Overall, I would still say that this situation creates more investing possibilities and one should not be hesitant to participate even if the outlook may seem bad.
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