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Contemplations on Egypt
When I first visited Egypt in 1977 they tried to kill me. I was accompanying US Secretary of State Henry Kissinger on an Air Force jet as part of his shuttle diplomacy between Tel Aviv and Cairo. Every Arab terrorist organization had vowed to shoot our plane down.
When we hit the runway I looked out the window and saw a dozen armored cars and personnel carriers chasing us just down the runway; all on board suddenly got that gut churning feeling. When the plane stopped, they surrounded us, then turned around, pointing their guns outward. They were there to protect us. The sighs of relief were audible. In a life time of heart rending landings, this was certainly one of the most interesting ones. Those State Department people are such wimps! Henry was nonplussed, as usual.
When I traveled to Tel Aviv, El Al security made sure my luggage got lost. So the Israeli airline gave me $50 to buy clothes. On that budget, all I could afford were the surplus Israeli army fatigues at the Jerusalem flea market. A week later, my clothes still had not caught up with me when I boarded the plane with Henry. That meant walking the streets of Cairo in my Israeli army clothes. It would be an understatement to say that I attracted attention.
I was besieged with offers to buy my clothes. Egypt had lost four wars against Israel in the previous 30 years, and military souvenirs were definitely in short supply. By the time I left the country, I was stripped bare of all Israeli artifacts, down to my towels from the Tel Aviv Hilton, and boarded the British Airways flight to London wearing a cheap pair of Russian blue jeans. Levi Strauss never had a thing to worry about.
Virtually every research and intelligence organization seemed surprised at the sudden riots in Egypt that dinged the market on Friday. Every one, except this one, that is (click here for “It’s just a matter of time before the food riots resume” at http://www.madhedgefundtrader.com/june_16__2009.html ). For some time now, I have been warning that high food prices would lead to political instability in emerging markets. If you had to pick one place where this would happen first, it would be Egypt.
The bewitching North African country is a prisoner of a medieval religion that has left its people stranded in the Middle Ages. While its GDP has doubled in the last 60 years, so has its population, to 83 million, meaning there has been no improvement per capital income. Islamic fundamentalism can be traced back to the mid-19th century as an extreme reaction to British colonialism. Egypt responded by inventing the concept of the sovereign debt default, which is how Britain ended up with the Suez Canal. Later, a young Winston Churchill cut his teeth as a journalist covering a major battle, the first where machine guns were successfully employed, and 10,000 of the faithful were mowed down. During the sixties, Gamel Abdel Nasser’s efforts to form an Arab United States failed. As a journalist, I covered Kissinger’s negotiations for peace with Nasser’s successor, Anwar Sadat, who was assassinated by his own bodyguard for his efforts shortly afterwards. Hosni Mubarek inherited the throne in 1981, and has been ruling the country with somewhat of an iron fist ever since.
I know that whenever the CIA kidnapped a suspected terrorist, but didn’t want to deal with the legal consequences of bringing them home, then happily handed them over to Egypt, where the shadow of Amnesty International is unseen. Today, the advent of cell phones, cable TV, the Internet, Twitter, and even Facebook, enable revolutions to unfold at lightning speed. Cut these off, and everyone pours into the streets. The tourism industry, the big earner for this impoverished country, has been shattered and will take years to recover. The Egyptian stock market gave up $12 billion in stock market capitalization in two days, but who cares.
Events like this tend to have implications far beyond our initial understanding. In 1979, when the Shah of Iran fell to a movement led by an unknown radical mullah named Ayatollah Khomeini, we thought no big deal, it’s a local problem. The Shah was no Boy Scout, and corruption in Iran was then was endemic. Yet the fall out eventually led to our wars in Afghanistan and Iraq that have cost us trillions of dollars.
Of course, the final question has to be how all of this affects you and I and the financial markets. The positive impact on food prices has to be obvious. But as long as the world is in “RISK OFF” mode, we aren’t going to see dramatic moves in my favorite ETF in the area, the (JJG). The selloff in stocks was going to happen anyway, so don’t pin the correction on the Middle East. Egypt was just the match to a market pyre that had been drenched with gasoline.
Today, Egypt is far and away the world’s largest importer of wheat. It is also a major supplier of food to the rest of Africa, as it always has been. At first sight of the troubles, surrounding countries rushed to increase stockpiles to head off shortages, and are a major force driving prices higher. Egypt is also a leading supplier of cotton to the world market, and there is no other commodity less able to handle a supply cut off right now. Its price has already doubled in the past four months.
There has been much talk about the oil situation. While Egypt produces 600,000 barrels a day, that is a drop in the bucket in today’s 84 million barrel/day global production. That is barely enough to meet domestic needs. A cut off of the Suez Canal would be problematic, but only for the short term. This explains why there has been a huge run up in Brent crude, to a record $9 a barrel premium over West Texas intermediate. But that is Europe’s problem, not ours. All of America’s crude from the Middle East comes around Cape Horn because the tankers are so large. If anything, this places a greater premium on Canadian tar sands producers like Suncor (SU), which are already rapidly replacing imports from other unstable sources.
The net net of all of this is a lot of short term angst, but little long term impact. This is great for volatility owners (VIX), (VXX), but of little consequence to the rest of us.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Probably the most important part of the entire article. When TPTB turn off ZH there will be problems. When Dancing With the Stars, et al., is interrupted there will be problems.
The pablum must be doled out to the masses or there will be hell to pay on Main Street USA.
All of America’s crude from the Middle East comes around Cape Horn because the tankers are so large. If anything, this places a greater premium on Canadian tar sands producers like Suncor (SU), which are already rapidly replacing imports from other unstable sources.
Sorry Mad totally not true-- http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
It seems that the cat herders mentality is ever omniprescent-please tell us your secret. As for the spread btween wti/brent is not really that cushing is full but one that many do not know -- on line blending takes many different variety's of crude and mixes it as one- what comes out of the other end sets the api hence the demand for that product due to api--
Crude types are characterized by their quality which is both their chemical and physical properties, e.g. TBP –
true boiling point distillation, density, sulfur content, RVP asphaltene content, paraffin content, etc. Each crude
type will have specific limitations and boundaries around these key indicators for what is acceptable within a
particular designation.
Both quality and supply will factor into valuation for any crude type. A producer or marketer will want to maximize
the value of their crude type. Lower quality crude oil and therefore lower value, may be blended into a larger
stream and higher valued stream. courtesy Husky oil.
This article reads like the Katrina disaster as bush fleww over in his presidential jet -looked out the window and said -YEP IT LOOKS FUCKED UP DOWN THERE---whats for lunch.
MHFT,
Next time you write an article of fiction please disclose as such, as not everyone has the time or inclination to fact-check, and may actually believe your trite prose.
Henry Kissinger left the State Department in January 1977, thereafter taking up a post Georgetown University until the summer of 1977, during which transitionary time he travelled to Bermuda, the UK, France, and Monte Carlo; all travelling by way of private jet according to New York Magazine (http://books.google.ca/books?id=X-MCAAAAMBAJ&lpg=PA38&ots=gqs83fTHNL&dq=1977%20kissinger%20georgetown&pg=PA38#v=onepage&q=1977%20kissinger%20georgetown&f=false). According to the records of the Israeli Ministry of Foreign Affairs the last time Kissinger was in Israel prior to leaving office was in August 1975 - capping his 5th and final round of 'shuttle diplomacy' in the region (http://www.mfa.gov.il/MFA/Foreign%20Relations/Israels%20Foreign%20Relations%20since%201947/1974-1977/CHRONOLOGY%20OF%20EVENTS-%201974-1977).
Moreover, what sage wisdom in making the comment "It’s just a matter of time before the food riots resume" (with no reference to Tunisian/Egyptian weakness in the provided link) 19 months before any material event. Stating broad trusims and championing them as forecasts beyond any reasonable trading period is intellectually dishonest at best and blatant misrepresentation at worst; however, as fiction this would likely only be graded as a poor effort.
Im confused. Is it great for volatility owners or sellers right now?
Ok i think he meant sellers. It fits with his overall them of this as a non event. Sell the spikes bitchez.
Few are willing to discuss what lit the fuse here: Fed inflation policy. It's a vital component of this story.
While the economic impact of the things you mention might be small at first, the economic impact of a non US-aligned Egypt would be huge and long running. The tremors would reach deep into US ME policy.
MHFT: you talk about yourself too much.
I remeber 2003 when I was going 2 friends for a trip to Thailand and our plane had to make a emergeny landing in Hafar Al batin, a small airport in Saudi Arabia next to the border of Iraq.
I wore a NYS cap, Lakers T-shirt, red shorts and running shoes.
The day before, mortars had blown up the roof of that airport, and it really looked like a warzone and those arabs where very nervous to see us.
While we waited in the airport they told us we had to stay there for 2 days. So we changed some money thinking we would be able to go to the town and have a little party.
I changed about 200 dollars and got in return a few hunderds bills, about 2 pounds in weight.
And behind us was a small office that had a sign: BANK OF IRAQ, so I wanted to have my picture taken while I threw all that money in the air with a big smile in from of that office.
Somehow that made the army guys in the hall a bit nervous to say the least and those who had the balls came asking us for sigarettes and asking if we where Americans.
About a dozen soldiers serounded us telling us we had to go to a bus (their english was so bad but their machine guns looked real enough so I understood it pretty fast enough).
We where escorted out to the bus with soldiers, and once in the bus the bus drove into the desert escorted with 3 jeeps with a big gun onto it, which somehow also stressed us a bit because those guys really wheren't nice.
Then we entered a compound with barbed fences, guard towers ... and that somehow made us a bit more scared then shitless because we really started to realise there was a war going on. In the midst of the compound there was this really fancy hotel filled with arabs that looked at us like we just robbed the place.
So to blend in, we, 3 young guys out to have fun, we wanted to have a drink in the bar of the hotel and demanded a bottle of whatever that contained alcohol and wel also started talking to a few girls also from the plane.
That took about 20 minutes before those army guys came back in, again without the happy face... and after a few hours of discussions I had turned into a little boy that got scared apeshit but could still show the pokerface and decided to give the guy a stack of money of what was left from that 200$.
Now by that time our discussion had already attracked other Arabs and when they saw that, they all started mumbling.
That soldier who was doing the word, looked arround and threw that money back at us and started yelling. By that time, I was ready to pass out and my friend where pissing their pants to :)
With a bit tearing and pushing they escorted us to our rooms and pushed us in. And for about the next 2 days, we didn't leave the room, even when they asked us to go to the dining room to eat.
And I still pretty well remember the bombings in the background that kept us from sleeping.
After that, we went to Thailand and made up for everything, but that day, I decided TO NEVER GO TO A MUSLIM COUNTRY AGAIN IN MY LIFE!!
Black Swans on the horizon? Right. You saw this coming, and it won't impact us. Oh yeah, I remember your post to this effect a few weeks ago. Or am I dreaming, too? Go blow Kissinger's old dead pud some more, and quit wasting bandwidth with this type of crap.
Shuttle diplomacy and crony connivance led to Egypt going down the toilet trap like a disposable US kleenex. Did the same in Iran and then in Pakistan. That is the genius of the shuttle that landed Pinochet in Chile and the Pakistani Pinochet, Zia ul Haq, in Islamabad. The guy who invented the Taliban, who declared blasphemy into state crime, punishable by death. When you have the CIA and the State department to screw up a continent, you can't say you didn't know which way the wind blew as you shook your uncle Sam pecker into the wind. Call your draw, like John Wayne, as you put up your back against the wall of lamentations... It's such a good feeling to feel your colt, red hot poker, that won the West and then lost the sense of the compass. Now Galileo the Great, Mustapha Mond, is like Cristopher Columbus...Clueless. Lets hope he discovers a new continent in Outer space...or is it in Oulanbatour?
It's always a pleasure to read your insights.
1+
Clif, I'm sure you've been seeing some interesting things popping up in the language since Egypt. Anything interesting for the short term?
I forget, did Henry Kissinger commit war crimes yet by 1977?
MHFT, you can't have it both ways. First you are talking about the seriousness of what is happening. Next you switch gears and say it won't effect us, right after showing us the last major example and how it did!
I understand you write a newsletter so you are trying to cover all bases, but in this missive you are just too flummy. Excluding of course your interesting biographical addition.
Nothing in the middle east is important, until it is. Oil is a globalized commodity. A price increase for Europeans is a price increase for us too. I've seen multiple explanations of the differential between WTI and Brent crude. The most compelling has little to do with Egypt and a lot to do with Cushing Oklahoma.
The real fallout of this will be in our political stance. Not Egypts govt. We've preferred stability over democracy in the middle east (except in Israel) for 60 years. Watching America make some hard choices is where the fallout comes.
Oh shit man you came on here talking that jive? Way to stir the pot, I am giving you a 5!
Non plussed or jaded that he is some divine ruler that reigns over the "Dogs of War"? Is he part of the priest class or King class, I can never tell with him and Brzezinski, they seem to play for both sides.
Pray, do tell, which religion is not medieval? Scientology is not an adequate answer.
Deism, a product of 18th century enlightenment and offshoot of christianity for those who reject the trinity and biblical inerrancy
wishing the egyptian all the best. obummer is trying to screw up their election process.
http://covert2.wordpress.com