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A Mixed Blessing?

02/22/2011

At 6AM, it looks like the Dow will drop about a hundred points at the opening, reacting to the fear of oil sky-rocketing due to the unrest in Libya. Nobody will notice that Home Depot just released their earnings, surpassing expectations for both revenue and net income, in addition to raising their dividend. On a normal day, that would lift the market. Consumer confidence will also be released this morning, and it will likely be ignored by the market as well.

The fear is that reduced supply will increase the price of gas at the pump, smothering the economic recovery. But, when the market is afraid, it doesn’t listen. For example, Saudi Arabia announced this morning they would pump more oil to make up for any lost Libyan oil production. If price rises while supply and demand for any product are unchanged, you can blame speculators. The price spike in oil we’re seeing today is temporary.

The market is over-reacting because it needs to over-react to something. It needs to take a break, while the economy catches up to it. Thank you, Mr. Gadhafi!

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