Political unrest and the market

If you have been watching the market today you would not have missed the drop across the board.

With the successful overthrow of the president in Egypt, citizens in other countries are becoming emboldened to stand up to their government. The latest situation in Libya, with Libyan leader Moammar Gadhafi vowing to fight to his “last drop of blood” has caused high fears of civil war.

As a result, investors are looking for safer places for their money. This has an effect on bond yields, oil prices, and gold prices. Oil has reached a 2-year high, while gold continually increases (currently at $1400).

The reaction of the market should not come as a surprise. Libya holds the largest proven oil reserves in Africa and is a large exporter of oil to Europe and to a lesser extent the United States.

A civil war would have adverse psychological effects on the oil supply and would undoubtedly shoot prices up, which in turn wold have an effect on countless other industries that rely on oil products as sources of energy, transportation, and raw materials.

Keep a close eye on the developing situation to protect your investments as much as possible.

One useful tool is the CBOE volatility index, or VIX.

“The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility.”

The benchmark level of 30 is what is considered when investors are “very worried”.

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2 Responses to “Political unrest and the market”
  1. Fantastic post tying in the state of the world political climate to the effects on the market! I really appreciate the insights and information G, especially since it is so easy to forget what human events are driving these markets!

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