Had Israel's assault on Lebanon closed or enlarged the gap?

Before I start, this is the quote of the month
"Press" only?

Imagine you have the start-of-the-art computer, bug-free software built over elegant algorithm, but you are fed with the wrong data. Garbage in, garbage out.

Misleading reporting feeds you with the wrong data. Laziness in checking data supporting you analysis leads to wrong conclusion and major embarassment.

Barnett's theory stated that in the "GWOT" we need to enlarge the "core" and shrink the "gap". In PNM theory the integrating core represents the mainstream civilization which is integrating to the global economy, the gap is the area that is left out of globalism, and a potential base for instability. The "seam" is those who are in between. To fight terrorism, Barnett asserts, we need to enlarge the core and shrink the gap, hence depriving terrorism of its fodder to feed on. This is essential for a long term solution.

Therefore, one of the indicators (or proxy) to measure success of GWOT is the measurement of globalization and economy. The most sensitive and convenient among these indicators is the stock market (i.e. financial community) reaction. The specualtors and investors are betting with their real money, and responding in real time.

Lawrence Kudlow at Real Clear Politics borrowed this concept and asserted "Israel Advances, Stock Markets Rally?":
  • At the close of business last Friday -- after another violent week in the Middle East -- Bloomberg chronicled the impressive performance of world stock markets: U.S. share prices had their best gain since November 2004...
Kudlow's whole essay follows pretty sound logic that I would mostly agree, except that the data he quoted is really unclear. This is the DJIA chart (for chronology of the conflict see wiki)

As you can see, Israel attacked, Stock market tumbled. The relevant question is, where would DJIA have been had Israel reacted sanely? Would it be higher or lower than the current level? Does the market absorb and shrug off the bad news after a few days? (e.g. "rally" a few days right after the major frash in Oct/1987 and Sep/11/2001)
  • Charts of other markets (see charts during the same periods of Nikkei225, FT100) tells the same story
I do not believe Kudlow and I are looking at different charts, so I have 2 hypotheses:
  1. Kudlow committed the crime of misleading investor
  2. Kudlow was as drunk as Mel Gibson when he wrote this.
Your pick.

p.s. To be fair, the market may react positively had Israel been able end the conflict quickly (and more importantly, had the oil price drop!). Unfortunately, this is not the case up to this moment. Not yet, and perhaps not for a while.

Here are the "Daily Market" from WSJ, which explains the main reasons for daily market changes
  • July 13: Dow Drops 121.59 As Mideast Woes Unsettle Investors
  • July 14: ANOTHER SURGE in oil prices to an exchange record and escalating tensions in the Middle East combined to hit stocks hard again.
  • July 15: Stocks Slide, Most of Year's Gains Erased -
  • July 18: STOCKS MANAGED to end their string of sharp declines, but worries about the Middle East fighting kept indexes largely flat. After falling more than 100 points in each of the previous three sessions, the Dow Jones Industrial Average edged up 8.01 points, or 0.07%, to 10747.36, leaving it up just 29.86 points for 2006. It has fallen nearly 900 points since hitting a six-year high May 10, and is nearing its 2006 low of 10667.39. Amid optimism the Mideast fighting might be contained, some investors decided that markets had fallen too far. They began buying stocks and selling oil and gold futures.
  • July 20: The market was galvanized as Federal Reserve Chairman Ben Bernanke told lawmakers a moderation in U.S. growth "now seems to be under way," which "should help to limit inflation pressures over time."
  • Investors had a strong incentive to buy "because of their perception after the comments that the Fed is almost done hiking interest rates," said Phil Orlando, senior portfolio manager at Federated Investors. "But I think they put on rose-colored glasses. There are other issues out there, including corporate earnings that appear to be slowing more rapidly than previously thought, as well as the tinderbox in the Middle East."
For July 21-30 the market absorbed the shock and reacted to US domestic statistics.

1 comment:

bobby fletcher said...

SB, I think all your charts and numbers ain't gonna explain this one.

Read the Bible as a political document, you'll see this 2000 year old zionist agenda (an objective observation, not jumping on the Mel Gibson bandwagon) will not end until the Christians convert the Jews (kill those who won't convert) and Jesus Christ comes back to Earth (Armageddon.)

IMHO this will never end, since AFAIK 2nd comming of Christ is a myth.