It’s different this time.

No, no, it really is.

Libya isn’t Egypt and the effects on the stock market this time will be different from the effects of the earlier crisis.

Different enough, in my opinion, that you need to factor them into your investment strategy. But not so different that you need to tear up all your investing plans for 2011.

The short-term effects don’t look that all that different, I admit. Especially if you look just a developed economy stock market like that in the United States.

Egypt, as scary and exciting (and important, especially for Egyptians) as it was at the time created, barely a ripple in the U.S. stock markets. On January 25, the “Day of Rage,” the Standard & Poor’s 500 stock index closed at 1291. On January 28, the biggest drop during the crises, the index closed at 1276. By January 31, the day when 250,000 protesters gathered in Tahrir Square, the index was back to 1286. By the day of Hosni Mubarak’s resignation the index had climbed to 1329.

The Libyan crisis is already longer than the Egyptian crisis. Demonstrations began on February 15 in Benghazi and the Libyan crisis was in Day 17 as of March 4.  The Egyptian crisis from January 25 “Day of Rage” to Mubarak’s resignation ran for just 17 days.

At this point U.S. stock market reaction to the Libyan crisis isn’t a whole lot bigger. The U.S. S&P 500 closed at 1328 on the day of the Benghazi protests, fell to 1306 on the February 17 “Day of Rage” demonstrations, rallied, and then fell on March 1 to 1306 again. It rallied to 1331 yesterday as good economic news from the United States overwhelmed reports of continued fighting in Libya. (See my post http://jubakpicks.com/2011/03/03/dont-worry-be-happy/ )

If you want to see “different,” you have to look at oil prices. Read more

Is the violence in Libya the last straw for the world’s emerging economies? Or at least for investors in those markets?

I certainly think that the big drops in emerging market stock markets are leading some investors to abandon markets that they never felt all that comfortable with in the first place.

For those of us—and I do mean us—who do believe in the long-term emerging markets story (and I wouldn’t have started a global mutual fund if I didn’t), it is still important to acknowledge that what we can call the Libya crisis for short has increased the medium term—say the next six to nine months–risk of these markets.

How come? Higher oil prices are a big problem.

Yes, I know that Saudi Arabia has lots of excess oil capacity and has pledged to pump to meet any losses from Libya. I know that it’s likely that once the Libyan crisis is over oil prices will retreat from current levels so that the world is probably not looking at $110 a barrel oil as the new base price. (I argued all this in my post http://jubakpicks.com/2011/02/23/its-still-a-little-early-in-the-libya-crisis-for-bargain-hunting/ )

And I know that the worries of the moment have concentrated on the world’s developed economies, especially Europe, which is very dependent on oil and gas supplies from Libya. The worry here is that higher oil prices—and Brent crude traded at $111 a barrel on February 23—will stall the weakest economies in the European Union. (A rule of thumb among economists is that every $10 increase in the price of a barrel of oil cuts GDP growth by half a percentage point within two years.)

But higher oil prices, even modestly higher oil prices, couldn’t come at a much worse time for emerging economies where governments are waging a tough battle to control inflation without tipping their economies into a big slowdown.

That balancing act, already difficult, got much, much harder with Libya. Read more

There’s early. And then there’s too early.

Early is buying Apple (AAPL) on October 6, 2008 at $98.14 and having to wait until March 2009—six months–before the stock moves up. And up. And up. On March 6, 2009 Apple closed at $85.30. A year later on March 5, 2010 the shares sold for $218.95. 

Early is happy.

Too early is buying home builder DR Horton (DHI) in July 2009. You thought long and hard before you moved. You didn’t buy on the first bottom in the summer of 2008 or even in early July 2009. You wanted to see signs the sector had bottomed and started to recover. The end of July rally seemed to promise that and so you bought at $11.17 on July 29, 2009. Now it’s February 18, 2011 and the shares trade at $12.77. The 14% gain doesn’t seem paltry until you remember that it’s your gain over 18 months. And that DH Horton shares still haven’t actually taken off as you’d hoped.

Too early is disappointed.

And it can be even worse—if you decide you can’t wait any longer and just have to sell. Then there’s a good chance that you’ve spent months sitting on dead money before taking a loss.

It’s clear why we buy early—we want to get a bargain price before everyone else piles on. And it’s clear why we buy too early. We don’t want to pass up a bargain—and lose our chance—so we jump in too soon.

Are there any rules that might separate the “early” from the “too early” and let us maximize our investing happiness and minimize our investing disappointments? Read more

2011 hasn’t been a great year for emerging stock markets so far

You probably have a sense that 2011 so far hasn’t been a very good year for emerging market stocks. Inflation fears, worries about interest rate increases, Egyptian turmoil, and a rising dollar that has depressed overseas stocks in dollar terms (the Brazilian real is down 1.7% for 2011 as of January 28, for example) have all taken a toll

How bad has it been exactly?

China is one of the best performers, down just 2.5% in dollar terms from January 1 through January 28, quite possibly because Chinese markets fell so much in 2010. Next best performer among emerging markets? Brazil, where stocks were down 5.5%. It just gets worse from there. Indonesia down 8%. Chile down 10.2%. Turkey down 10.8%. South Africa down 11.8%. India down 12.4%.

Russia bucked the trend with the ruble up 2.7% against the U.S. dollar and Russian stocks in dollar terms up 6.1%.

So when will these markets rally? Read more

How did the stock market do in 2010?

Depends.

Which stock market are you talking about?

The United States–where the Standard & Poor’s 500 stock index climbed 15%–or Spain—down 19% for 2010?

China–where the iShares FTSE China 25 was up just 3.5% for the year—or India—up 21% for the year?

Chile—up 47%–or Brazil—up only 8%?

Last year, like most years, how you did as an investor depended very much on where you did your investing.

So in 2011 what are you going to do about it? Invest in the world’s best stock markets, of course. And today I’m giving you my take on how to separate the best from the rest in 2011. Below you’ll find my five picks on stock markets to overweight in 2011. Read more