War? What War?

They say that Tel Avivis live in a bubble.

If you've been up north recently, especially in the Galilee, and come back to Tel Aviv, you've seen the difference: the north is deserted. The cities and towns are silent, stricken and scary. An hour and a half away, in Tel Aviv, it's business as usual: the restaurants and packed, the malls are thrumming and life goes on.

The rest of the country calls Tel Avivis decadent, detached from Israel's reality, closed off inside their urban enclosure.

And this time, there is one Tel Avivi who should know better, one Tel Avivi who should be lending a keener ear and a warmer heart than the people thronging the cafes, yet who is treating the war not 250 kilometers away with utter contempt. That is the Tel Aviv Stock Exchange, the place where hundreds of thousands of investors, Israelis and foreign alike, meet.

On Sunday the TA-25 index advanced by 0.8% to 786 points, only 3.5% below its level on Wednesday, the day on which Hizbullah forces kidnapped two Israeli soldiers and sparked the conflagration.

For the sake of comparison, that same stock exchange, Tel Aviv's, sank 10% in the two months before the war because of the retreat by emerging markets such as India, Turkey, and China.

Why is the TASE so blithe about one of the most serious conflicts in which Israel has been involved, a war that has paralyzed economic activity in the north, that has cost human lives and raised the risk premium of the entire Middle East?

They don't make their money in northern Israel

The power of the TASE is all the more remarkable when you consider that today - as opposed to Israel's previous periods of war - light-footed foreign investors are responsible for much of the financial activity in Israel, and they can see the awful images coming from Lebanon and the Galilee.

Some investment managers believe that investors simply don't understand the true price that the war will exact, and that major players have a tremendous interest in keeping the indexes high. But at the end of the day, the bill will be delivered to the table.

But there is another possible explanation, no less important. Look closely at the list of the 25 biggest companies on the TASE and ask yourself: where do they make their money? That will explain the complacency on the TASE as northern Israel burns.

The biggest companies on the TA-25 index are of three types. The first is exporters with practically no dependence on the local market. This list includes the likes of Teva (generic drugs), Ormat Industries ('green' energy), Perrigo (generic drugs); and Israel Chemicals (potash and other).

The second kind is investment companies that used to focus on the local market, but don't any more. These include The Israel Corporation, Africa Israel and Gazit Globe.

The third type is companies that do operate mainly in the domestic arena, for instance the big banks and the cellular carriers. These will be hurt by slowing demand and the collapse of small businesses.

But even these companies in the third group are well protected against the flames in the north. In most cases, they are powerful monopolies or oligopolies with enormous market shares, and a talent at milking the public of disposable income, whether during boom or bust.

The good news, and otherwise

In general, the companies responsible for most of the value on the Tel Aviv Stock Exchange are giants with ample padding and more, which can stand up well to economic jolts.

The good news is that the strength of the TASE during Lebanon II reflects the strength, and international diversification, of most of Israel's biggest companies. It also reflects the tremendous development of Israeli export since the 1980s.

The sad news is that the behavior of the TASE utterly fails to reflect the economic disaster that has befallen thousands upon thousands of families who fled the missiles blasting the north, and the businesses ground into dust by the conflict. If the war goes on, the heavy macroeconomic cost of security will result in rising deficits and tax rates. And finally, it will impact every niche of society, every last corner of the land and even, finally, the Tel Aviv Stock Exchange.