Profits or Pundits?

Wednesday, August 30th, 2006

Jerry Bowyer asks whether we should listen to Profits or Pundits?:

When I want to know what the people of a region are thinking, I look at two things: short-term capital flows and long-term migration. The two most important votes that a man can cast against his rulers are when he votes with his feet or when he votes with his nest-egg. Usually, he does it in the reverse chronological order.

The results were shocking. Shocking, that is, if everything that you know about the conflict comes from talk radio and cable TV.

When Hezbollah was taking the initiative, Arab companies fell. When Israel hit back, they rose. The harder Israel hit, the faster they rose. You’d expect the Israeli markets to act this way (which they did), but the Arab ones too? You see, Hamas and Hezbollah are not just threats to the Jews; they’re threats to the Arabs. In fact, they do more damage to the latter than to the former. They represent the political and social chaos that keeps the money of the first world from flowing into the third world. The natural conflict is not between Arab and Jew, it’s between civilization and chaos. By this measure, Israel didn’t destabilize the region; it re-stabilized it.

Since long-run migration patterns after the crisis will not be available until, well, the long-run, we should look at what capital markets are saying.

I’ve taken a cross section of large, publicly traded blue chip companies that do business in Arab countries. This group, dubbed, “The Arab Titans Index,” is composed mostly of banks and utilities. Then I synced it with a time-line of the major attacks and counter-attacks of the conflict.

But the markets have a surprise for the hawks, too: They liked the cease-fire. The incredibly complex web of information that constitutes the decisions of the customers, managers, and shareholders of the Arab Titans concluded that Hezbollah’s actions were bad for business. Likewise, they concluded that Israel’s counter-attack was good for business. Finally they came to the conclusion that it once Israel achieved on the battle-ground as much as could be expected it was time for the war to come to a conclusion, too.

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