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Buffett, bin Laden and DollarWatch

The investing story of the weekend, the Berkshire Hathaway annual meeting, has been surpassed by news of the death of Osama bin Laden. We couldn’t let the occasion pass without making Foolish comment.

We’ll leave the analysis aside, including what it might mean to the war on terror, instead focusing on what it might mean to the world of business.

Initially at least, world stock markets rallied. I must admit to being a little dumbfounded by this reaction.

Better Dead

Yes, a mass-murdering martyr is better dead than alive, but his death is unlikely to stop those intent on murder from trying to commit further atrocities. I mean, it’s not as if bin Laden has been a hands-on leader of al-Qaeda the past decade.

I can only put the market’s reaction down to a sense of euphoria, investors thinking a feel-good factor in the U.S. will hopefully lead to a faster and possibly stronger economic recovery.

Confidence is infectious. Confidence is one of the reasons why the U.S. grew to become the world’s largest and most vibrant economy. There is nothing American’s think they can’t achieve.

Despite their current economic woes, the U.S. is still the home to most of the biggest companies in the world, including Microsoft, Exxon Mobil, Apple, General Electric and Google.

Nothing Changes

Well, as far as the markets were concerned, the euphoria didn’t last long. Bloomberg reported U.S. stocks retreated on Monday “as a slump in commodity producers overshadowed optimism spurred by the death of Osama bin Laden.”

The same news agency quoted Russ Koestrich of BlackRock as saying it’s not clear that bin Laden’s death is going to change the ongoing events in the Middle East.

We got a psychological lift, but it doesn’t change anything.”

My thoughts exactly.

Pumping Up Airfares

The global economy still faces some tricky challenges. The oil price at over $US110 is hurting company profits, and adding to inflationary pressures. For example, Qantas (ASX: QAN) and Virgin Blue (ASX: VBA), to name two companies uniquely exposed to the oil price, are pumping up air fares in response to the high oil price.

And then there’s the Aussie dollar. Was it only Friday when we said the dollar could hit $US1.10 by early this week? Mission accomplished. A career in forex trading clearly awaits us.

But why stop at $US1.10? The Australian Financial Review said more optimistic foreign exchange analysts are tipping levels of $US1.30 over the next 12 months.

Not a chance. The same newspaper quotes Macquarie (ASX: MQG) equity strategist Tanya Branwhite as warning the strength in the dollar “is going to be very damaging” for the share market.


The Aussie dollar bubble is in full swing. But the air will come out of it very rapidly at the first sign of weakness in U.S. share markets.

Remember it was only a few weeks ago, when the Dow slumped almost 400 points in 2 days, that the Aussie dollar slumped below parity, with some strategists saying it could hit US$0.955 in the near term.

Markets, including foreign exchange markets, can remain irrational for longer than you can remain solvent.

And the Aussie dollar bubble may go on even longer than a rational person might ordinarily expect.

But the contrarian warning signs are there, with the Fairfax press reporting “Industry groups will go into lobbying overdrive this week in a last-ditch effort to influence the federal government to provide relief in the budget for industries being battered by the high Australian dollar and weakening consumer demand.”


Anyone remember FuelWatch and GroceryWatch? Both were to be launched at the top of their respective markets (oil at $US150 and the nadir of Coles), and were a sure sell signal.

The government (thankfully) may not be about to launch DollarWatch, but lobby groups getting in the government’s ear, complaining about the strong dollar, is a decent sell signal.

And if Treasurer Wayne Swan falls for the lobby groups in next week’s budget, look out below. No wonder the bin Laden effect on world stock markets quickly petered out.

Of the companies mentioned, Bruce Jackson has an interest in Microsoft. The Motley Fool has a dynamic disclosure policy.

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