I got a phone call on my cell this morni…

I got a phone call on my cell this morning from an unknown New Mexico number and when I answered, my senior English teacher, now retired at 72 years old, wanted to know if we could go to lunch to “memorialize the death of Osama Bin Ladan and this great day for our great country.”

At lunch, she told me stories about how she was once engaged to the Minister of Finance of Saudi Arabia and about some of her crazy times touring the Middle East like a queen back in the 1960s.  She also stopped several times to high-five me over OBL’s death.

And while I find myself almost numb and/or angry about the announcement of OBL’s death all these years after he and his cohorts killed some of my best friends and destroyed my apartment, made me flee with my cat from the collapsing WTC, and destroyed thousands of American’s livelihoods and changed the course of our country, I also recognize just how meaningful his death can be to much of America.  My old English teacher, who told me at lunch that she has indeed known me for my whole life, is more confident today than she was yesterday.   I saw a note today from a broker this morning that had these three bullet points to explain, and it hits on exactly what seems to be going on in my English teacher’s mind and much of America’s.  The note is titled, “3 Reasons Death of Bin Laden Should Have Lasting Positive Effects on Equity Markets”:

The death of Osama Bin Laden, in our view, will have durable positive effects on equity markets, persuading investors to diminish fears on global security (a strong case to be made that the war on terror is over), leading to lower equity risk premiums (read P/E of stocks go up). Why?

• #1: Equity Inflows Should Increase….Those investors have one less excuse to see “risks” in equity, thus, inflows into equity should improve. Already, YTD US equity funds have seen inflows of $30b, the largest share of any asset class YTD. Yet the pace is below what existed for most of the past two decades—in any year prior to 2008, this figure would be $58-$60 by May.
• #2: Contracting Size Of Tail, Thus Raising Importance Of Relative Value. A second important reason we see equity valuations increase (via lower risk premia) is that terrorism is a tail event, and the framework of asset allocators/macro funds/individual investors was to build “fat tails”—that is, build greater likelihood of terrorism in their models. With smaller tails, “catastrophe” assets like commodities have somewhat diminished value in a portfolio compared to “relative value” assets like equities (which remain historically cheap versus bonds). In other words, this argues for inflows to increase for stocks.
• #3. Consumer Confidence Goes Up: US Govt Scores Major Victory In War On Terror, Strengthening Credibility Of US Govt And US In General. Consumer confidence (CONCCONF Index <<GO>>) at 65 remains at levels seen during recessions and well below the 102 average of 1998-2008. We acknowledge unemployment, high oil, and weak housing are major factors behind this low reading. However, the lack of success of capturing Bin Laden since 9/11 has frustrated US citizens about the ability of US government to bring enemies to justice, despite our enormous resources. Thus, a major win in the “war on terror” could be seen as analogous to the boost seen after defeat of major enemies.How do consumers express confidence? They borrow money…thus; this is a boost to Financials, which have suffered from lack of loan demand…
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I often tell you guys to ignore the short-term news headlines and keep your eye on the prize.  Today’s headlines of the death of Osama Bin Laden matter…even if we can’re really quantify them other than to say that over the near-term, the boost to confidence, markets and our country, not to mention a possible decline in the terrorism-premium in oil along with a possible increase in the multiples the market is willing to pay on equity earnings, are positives that shouldn’t just be ignored.  Don’t trade on them, but know that our world changed for the better today.  At least for now.  We have to stay vigilant as always though.

Other than the Live Nation puts I added today, I did no trading at all.  See you manana!