When a Bee Stings on Fitzroy Street

As all of Australia stops what its doing to watch Chicago's Bears play the Colts of Indianapolis in the forty-first Superbowl... oh wait... wrong country.

While America puts on its national leisure suit to strut its collective stuff, markets around the world begin the business of sorting out a shocking report on climate change, civil war in Gaza, and the confusing signals from the energy market, where Russia has said it would like form an OPEC for natural gas. PONG perhaps? Producers of Natural Gas. Or SPONGE? State producers of natural gas exports?

Russia's President Vladimir Putin only said he would, "think about" a "gas OPEC," in response to a question at a press conference. And on the surface, the story is an afterthought. Stocks in Europe closed near six-year highs on Friday. In the U.K., the driving force was a private equity bid for grocery store chain Sainsbury's.

The Dow, hampered by laggards Boeing and Alcoa, was down. But the S&P 500, a much broader measure of the market, also made a six-year high. And here in Australia, despite analysts lowering profit forecasts for RIO in 2007, there is a widespread feeling that the resource boom may just keep on keeping on.

We can't find much to dispute that argument, except a bee sting. On Saturday we sat eating on omelette on Fitzroy Street. A colleague explained to us that, "I think this boom could keep on for another five years. Everybody wants something out of it. The Boomer's especially are hitting those prime years where they need the most money to fatten up their retirement accounts. This isn't a liquidity theory about what drives stock prices. This is what needs to happen for people, so they'll make it happen."

"Maybe," we began to respond. And then we noticed a yellow and black insect drilling a whole in our left arm. It's been over ten years since we last got stung by a bee (delivering ice to a general store in Glen Haven, Colorado.) We smacked the bee away and pretended not to be hurt.

"What is the probability that I'd get stung by a bee sitting here on a gorgeous day with not a cloud in the sky? Do I look like a flower? Do I smell like one? No. and No. Sometimes thinks just happen when you least expect them. That's probably why they happen, because you least expect them. Science just can't explain that yet."

As Kris Says, a consensus is building that "this could be the one." Namely a boom that does not grow tired and weary. The Dow, as we mentioned last year, seems determined to cross lucky 13,000. Here in Australia, the ASX/200 finished the week a 5,831. It may decide to form its own gas bubble and cross 6,000 in short order.

Maybe Alan Greenspan was right. Years ago he said derivatives had successfully "disaggregated" risk in global markets. Now, no one institution's collapse could threaten global financial stability, as nearly happened with Long-Term Capital Management in the wake of the Russian bond default in 1998. Now, everyone owns a million little pieces of risk. Someone, having all that risk distributed across the balance sheets of thousands of firms and funds makes the world more safe, not less, according to Greenspan.

We'll see. But for now, judging by the price action, the market seems utterly unconcerned with rising sea levels, rising debt, or rising cases of bird flu. This can't be because there is less risk in the world today than three years ago. Perhaps it's only because there is more money. And easy money trumps real risk, at least for awhile. But for how long?

"Stock markets have become inured to terror attacks and war, but when growth slows and investors turn queasy about risk, shares may prove more vulnerable to shocks such as a conflict between the United States and Iran," reports Bloomberg today.

"There's a degree of discomfort among investors who feel markets are too good to be true," said Citigroup economist Michael Hart. "If and when the stampede happens, it could be exacerbated by this feeling."

Just how many investors think today's markets are "too good to be true," and how many think, "thank goodness, I'll be able to work on my tan lines and body fat percentages in just a few more years?" Hard to say.

What we can say is today's investors don't appear to do much thinking until it's too late, at which point they are merely reacting. If nothing in the financial world can disturb the liquidity-driven great boomer really, it will be a geopolitical event that does it, something too big and ugly and real for anyone to deny. In that respect, Russia's little announcement is not the big one. But it is a reminder that in markets, there is always a big one, and the longer you go without it, the larger its going to be when it finally hits.

Until then, enjoy the Superbowl!

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