In Wake of Bin Laden's Death, Debt, Inflation Remain the Real Issues

Experts expect a short-term psychological boost for the U.S. stock market.


The market's reaction has been fairly positive following the announcement of Osama Bin Laden's death, but experts say this news will only be a short-term distraction.

"Like all news events, how long the legs are in this story will depend greatly on investor reaction, and if there is any follow-through from other terrorist organizations," says Lipper Senior Analyst Jeff Tjornehoj.

Tjornehoj says investors should take a "wait-and-see" mentality with such an event. "There is certainly an opportunity from a backlash or a reaction," he says. "It's not like 100 percent of the world is rejoicing at this moment."

Rob Lutts, chief investment officer for Cabot Money Management, expects a short-term psychological boost for U.S. investors, but says there are many other real issues affecting the economy, specifically the ballooning national deficit.

[See What Voters Need to Know About America's Debt.]

"The explosion of debt in the developed economies is a very real issue," Lutts says. "Washington has no clue how significant a problem we have debt-wise, and this is related to our military operations all over the world. ... We want to have a war with everyone all over the planet with no concern about cost."

While stocks are up slightly on the news, Lutts says it's important to watch what's going on in the gold and silver markets. Both metals have reached historic highs recently, as investors generally flock to precious metals during times of uncertainty. "If you look at gold and silver markets, they are telling you something very important today," he says. "This is smart money protecting themselves." Both have experienced minor sell-offs so far this morning, but Lutts says if investors were confident that policymakers had a plan to fix the deficit, the selling would be much more intense. "I was expecting a sell-off," he says. "I was expecting to see [precious metals] down 1 percent or more." Gold still trades around $1,550 an ounce, while silver is hovering near $50 per ounce.

In the end, Tjornehoj says there are much bigger risks facing investors today. He says: "It still doesn't change the inflation risks out there. It doesn't change the economic headwinds. It's just one piece of a very, very large puzzle."

Twitter: @benbaden

bin Laden, Osama