Jan

30

Egypt – a new pyramid scheme?

My newest Tweet:

Though it's cool to back the Cairenes, it's uncertain protest upshot will lead to a pro-West replacement ~ Will this now exacerbate the Mideast mess?

We are conditioned from the–Iranian, failed–Green Revolution (and latterly, the Jasmine) that these street-spontaneous uprisings are 'good,' but in fact, it has both short-term and long-term consequences that are not known and unknowable. Both of these short- and long-term paradigms, however, are shaky for a solid footing on which to base the expectation of mooth relations with the West. Short-term, the price of oil is sky-rocketing, as a fast-and-easy way of measuring the instability of the moment. but even long-term, the likeliest substitute leaders for Egypt might well be worse than the incumbent of the past 30 years–should the Brotherhood come to the fore, the treaty with Israel is of course shot, and there is little expectation that the Egyptian new administration will honor that piece, even if they forego the usual US $1.8 B foreign aid to Egypt, and even if that does not strike observers as very momentous: It is. the domino effect is deeply being felt here, and the net result of all these eructations in Tunisia and now Yemen and Egypt might not be the idyllic result we unconsciously root for.

much as i hate to admit it, the sluggishness and peculiar molasses-reactions of our Administration might instead be based on better Intel than has been shared thus far, and is to be explained by the caution advised by our ears and eyes on the ground that predict a rather worse outcome than the roseate sentiments of the moment. Saddam's insurrectionist town centers come to mind–we thought it was a picnic at fiesta rock when he was deposed and de-statued–but the result was an unseating of the delicate equilibrium vis-a-vis Iran that is our current and future nightmare.

Egypt is the fulcrum in the region, and its stability and hegemony, even if grudging, was a key element. Now we have historic seismic shifting, and no telling what forces will wrest ultimate control. this being the MidEast , it is not an easy guess what ultimately will redound to the contemporary euphoria.

Can Washington be so very out of the picture with their measured support for a dictator? and their reluctance to back this 'revolution'? Or can this mean that Yemen , Egypt , Jordan, possibly other nearby states will be in temporary flux for the next few years, with oil costs reflected in this indecision, at $4/gallon again, on our hugely fragile so-called recovery– and the recovery of our allies?

Exulting on our part is, it seems to me, premature.

Paolo Pezzutti comments:

What is happening in Tunisia and Egypt can be seen both as an opportunity and as a risk. Markets have not considered at all the events in Tunisia, but they are concerned by the situation in Egypt, because of the importance of Suez and the vital role of Egypt in that critical area of the Mediterranean. The question is: are these countries moving toward more democratic governments? Or there is a risk to witness an Iran-like evolution (or involution by western standards…) of the situation? What if their neighbors experience similar shocks (Lybia, Algeria for example)?

The emergence of an arc of instability could have important regional and global consequences. At the same time there is a historic opportunity to move toward democracy. Markets on Friday moved quickly to the downside, and gold and the dollar recovered a bit as "flight to safety" seemed to be predominant. Markets perceived risk more than opportunity. It remains to be seen if this perception is going to stay. Or as it often happens it is only a buy on dip opportunity for the stock market. Interestingly, associated to the news from Egypt some reports from corporates pushed stocks lower. (Why bad news come always in clusters?). In fact, news about Ford and Amazon which posted very good results (but not enough apparently) made the stocks tumble (-13% and -7% respectively). One is made to think if also the perception of earnings expectations is changing. One analyst commented about Amazon (which went up 50% since last July): "When margins go the wrong way on a high-multiple stock, you get a correction, like we are seeing today.”

However, he maintained his own outperform rating on the shares. Instead, Ford's fourth-quarter profits were nearly half of what some analysts expected. It is interesting, however, to see how change always occurs unexpectedly and swiftly both in social systems and in markets. I am far from saying that the long uptrend is over. Many will continue to buy on dip for quite some time, but the doubt is out there and shorts may try once again on different grounds. After the "military" campaign based on the European sovereign debt may be over (at least for now), uncertainty about situation in Egypt and on stocks high evaluations could be a ground for confrontation.

A new battle may have started.


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