When I was on the plane, that was the first time I got connected to the outside world, picking up a copy of Financial Times. I will not want to bore you with all the details that you already well informed. Yes, Libya rattled the world, whether it was just an excuse or something else is not that important. What counts is this, people did sell when they saw this headline though they were not necessary right.
What is more important is when to reenter the market. Some smart guys will certainly sell first, ask question later. However, these smarts guy also know when to buy back when it has fallen enough. On the other hand, the majority of poor retail investors will not buy back and miss the next upturn.
Back to Libya, the catalyst of the sell-off. If you look at the chart below, they are not a very big producer. The question on everybody's mind is will this spread to other unstable countries. Or what if the unthinkable scenario like Saudi Arabia caught this disease?
I mentioned inflation was the trigger of the recent unrests in Egypt but I did not elaborate it a lot. Now that I got a bit of time, I will expand it a little bit further. Unrest in Libya, Egypt and etc have a few commonalities. First these countries have been controlled by dictators. They sucked out all the money from people. Though they are rich with oils but prosperity was not shared with their people. Youth unemployment was high. While their stomachs were not taken of and further compounded by high commodity prices, especially food - how long more can you expect them tolerate? So what do you expect these people to do? So, theoretically, this can spread but I believe either the demand will soften with high price or other big producers will try to cover for the short falls.
Saudi announced a US $ 35 billion "royal gift" to tackle social, unemployment and housing benefits. This was a swift action to address the stomachs so that people will not take their dissatisfactions to the streets. They may take it on-line though.
(Financial Times)Saudi Arabia’s $35bn “royal gift” in social, unemployment and housing benefits – aimed at averting the spread of popular dissent that felled the Egyptian and Tunisian leaders – has failed to satisfy activists’ demands for reform.
The kingdom’s state media said the decision proved that King Abdullah “is not isolated from his people, unlike most leaders of third world countries”.
Activists’ hopes had been raised by a text message sent from Saudi-owned Al-Arabiya television, which said “King Abdullah approves a number of reforms and developments”, fostering the impression that big political reforms had been announced.
But when the promised reforms failed to materialise and democratic changes were not part of the king’s package, activists voiced their anger online.
“King Abdullah is our last hope of true reforms. However, I was disappointed when I heard the decisions,” said Bander Alnogaithan, a Harvard-educated lawyer who often chronicles his dissatisfaction with the country’s judiciary on Twitter.
So what am I saying? Don't let this issue or any other issue that will come out along the way to shake out some weak hands in order to make make ways for the bull to run.
BTW, China already talking about sustainable economic growth, i.e sacrifice high growth for sustainability. In my opinion, China does need to cool off as the wage inflation has been terrible. Most companies suffer double digits wage raise last year. What is worse, the management will have to treat their workers like gods, begging them to work. Productivity will suffer very quickly if they don't engineer a soft landing. I believe this is a good news while most people with shallow analysis will again call for sell again..............