NBBT!

Today we had an NBBT {Next Big Bad Thing}. This one was a bit different because the markets have long factored in that we would have more terrorist attacks in either the US or in most of the nations alligned with us in the War on Terror. Even if we have accepted the fact that there will be more terrorist attack in the future, we never know when they might occur. In the cold calculus of market analysis, the total events of London were measured against both Madrid and New York and the economic impact was deemed to be minimal. I have attached a 5 minute chart of the S&P 500's etf {symbol SPY} to illustrate how American equities processed the information from London during the day. After an initial decline, the US markets staged a rally & the major averages actually managed to finish close to positive by day's end. It is likely that terrorism has by now been factored into the return that investors are now expecting from stocks and it is therefore also likely that it will take an event equal to or larger than the 9-11 events to have a significant negative effect on stock valuations.

The terrorists made a big mistake today because they attacked the wrong city. As horrific as these events are (and any such loss of life is tragic whether it is in London, the United States or Iraq), the Germans dished out worse and the IRA regularly bombed London between the 1970's-the 1990's. The political realities of this event have yet to be played out. Stay tuned.