Monday, 31 January 2011

Egypt & The Next Lehman.

Baltic Dry Index. 1137 -49

LIR Gold Target by 2019: $30,000. Revised due to QE.

How long can the Egyptian economy survive chaos? This is becoming a more important question than how long Mubarak can cling on to power with the backing of the military. Reports are now circulating of the breakdown of the country’s distribution system. From petrol to bread to milk, shortages have developed. The bottom third of the country are largely unable to work and mostly live week to week. The government produces the subsidized bread most of the poor rely on. But according to reports bread is no longer being produced and petrol stations are no longer getting deliveries. Almost as bad, tourists are leaving Egypt with few if any, arriving outside of Sharm el Sheikh. The Nile tourist industry will quickly collapse if tourism doesn’t quickly resume. While Mubarak clings on to power that isn’t likely to happen, we are about to witness a historic week. Stay long precious metals. The Middle East will be lucky if this change ends with Egypt.

Leading article: The future of the Middle East is being decided in Cairo

Monday, 31 January 2011

Malign confusion reigned in the Egyptian capital last night as power ebbed from the regime of Hosni Mubarak to the streets but could find nowhere of legitimacy or permanency to settle.

The personnel changes announced by a desperate President on Saturday – the head of intelligence to become Vice-President and the former head of the Air Force to become Prime Minister – paved the way, along with the existing state of emergency, for the imposition of martial law. Mr Mubarak's televised meeting yesterday with the generals sent the same message. If the army and the President were united, however, they were united in impotence.

With the people in control of Cairo's Tahrir Square, some suburbs and parts of other cities reportedly under vigilante rule, and supplies of basic food and fuel threatening to run short, the stand-off of the past week had to be coming, in some way, to a head. Low-flying military aircraft, clearly calculated to intimidate, suggested that the relative bonhomie between military and civilians might be coming to an end. New columns of tanks said the same. But any aggressive use of force threatened to complicate the most obviously benign resolution. Egypt, and the region as a whole, were precariously poised last night between a tentatively positive denouement and chaos.

----At best, Mr Mubarak's designation of a Vice-President and his public show of solidarity with the military were designed not to preserve his 30-year rule, but to ensure an orderly transition – or a transition as orderly as it can be at this late stage. If the President cedes power and the military can retain popular trust, there is the outline of at least a temporary solution. An interim administration with the prominent involvement of the armed forces would be hard for Egypt's Western allies to stomach, but – with a short, fixed term, a promise of rapid reforms and an early date for free elections – it could be the least bad of many scenarios. Mr ElBaradei's imprimatur, or direct involvement, could make the difference.

The immediate test for any interim regime would be whether it could win the confidence of the protesters thronging the streets and those people sheltering in their homes too frightened to go out. For Egypt's friends in the world, the test would be whether they would be able to hold any new regime to its undertakings.

----The alternatives are dire. If Mr Mubarak's moves in recent days are designed not to ease a transition, but to reinforce his hold on power, it is hard to see how popular anger can be held back. A military crackdown would then be one possibility; widespread disorder – and a conflagration that could set the whole region on fire – another. There was still time, last night, for anarchy to be averted. But it was time that was rapidly running out.

Egypt and Tunisia usher in the new era of global food revolutions

Political risk has returned with a vengeance. The first food revolutions of our Malthusian era have exposed the weak grip of authoritarian regimes in poor countries that import grain, whether in North Africa today or parts of Asia tomorrow.

By Ambrose Evans-Pritchard 7:30PM GMT 30 Jan 2011

If you insist on joining the emerging market party at this stage of the agflation blow-off, avoid countries with an accelerating gap between rich and poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.

Events have moved briskly since a Tunisian fruit vendor with a handcart set fire to himself six weeks ago, and in doing so lit the fuse that has detonated Egypt and threatens to topple the political order of the Maghreb, Yemen, and beyond.

As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding.

This is nothing like the fall of the Berlin Wall. The triumph of secular democracy was hardly in doubt in central Europe. Whatever the mix of aspirations of those on the streets of Cairo, such uprisings are easy prey for tight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.

In Egypt this means the Muslim Brotherhood, whether or not Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is of course a different kettle of fish from Iran’s Ayatollahs; and Turkey shows that an ‘Islamic leaning’ government can be part of the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."

-----The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.

Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.


Egypt Spurs Jump in Developing Money-Market Rates

By Michael Patterson and Ron Harui - Jan 31, 2011 7:50 AM GMT

Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt will destabilize the Middle East.

The yield on JPMorgan Chase & Co.’s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28, from a record-low 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a two-month high of 2.77 percentage points today, according to JPMorgan’s EMBI+ Index.

Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008. Oil rose 4.3 percent in New York on Jan. 28 and today hit a one-week high of $90.87 a barrel as Egyptian protesters clashed with police, calling for an end to President Hosni Mubarak’s 30-year rule. Middle East shares recouped some of their losses from yesterday, when Abu Dhabi’s index dropped the most in a year.

“The geopolitics is clearly a warning to investors,” said David Cohen, the head of Asian forecasting at Action Economics in Singapore. “Oil prices have spiked higher. That would be one more source of upward pressure on interest rates.”

The last time short-term borrowing costs in developing nations rose this fast was the second half of 2008, when the global financial crisis and record commodity prices pushed the world economy into a recession. The yield on JPMorgan’s ELMI+ Index jumped as high as 21 percent in October 2008, prompting central banks around the world to slash benchmark borrowing costs.

Egypt's Banks Risk Deposit Run as Week of Violence Hits Economy

By Zainab Fattah and Tamara Walid - Jan 30, 2011 10:00 PM GMT

Egypt’s banks may risk a surge in customer withdrawals when they open for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak.

“A run on the banks would be the biggest concern, which is possible in the current situation,” Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said.

Egypt’s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead. Tanks are guarding banks and government buildings in Cairo that are vulnerable to looting, state television said. The EGX 30 stock index had a two-day drop of 16 percent through Jan. 27, with Commercial International Bank Egypt SAE, which accounts for more than one-fifth of the benchmark, falling 12 percent. Markets throughout the Middle East declined yesterday on concern the unrest may spread.

-----Central Bank Governor Farouk El-Okdah said in a telephone interview Jan. 29 that his bank has $36 billion in reserves, enough to accommodate investors should they wish to withdraw funds. His deputy, Hisham Ramez, said interbank lending “will function properly” when banks are reopened. He said the security situation will determine when that is possible.

Time for most to await developments from the safety of gold and cash. The hedge fund gamblers will find it impossible to wait, I suspect. Events like Egypt can all to easily bring on the next Lehman.

At the Comex silver depositories Friday, final figures were: Registered 43.49 Moz, Eligible 61.19 Moz, Total 104.68 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today China. What were they thinking? How could they expect not to get found out, turning China into an Asian laughing stock.

China red-faced after footage of new fighter 'was from Top Gun'

Perhaps it was "a need, a need for speed", as Maverick and Goose once put it, but China's military have been embarrassed by accusations that instead of filming genuine footage of their latest fighter plane, they used a scene from the film Top Gun.
By Andy Bloxham 7:34PM GMT 30 Jan 2011

The footage showcasing the J-10 fighter, which showed an air-to-air missile destroying another jet, was aired last week during the main evening broadcast of the state-sponsored channel China Central Television.

Bloggers on internet message boards quickly picked up the similarities and the footage was removed from the CCTV website but not before the clip had been copied.

The Wall Street Journal then published a video which compared the two film sequences, with uncanny similarities.

The explosion is so similar that the fireball appears to form the same shapes and near-identical chunks of debris spray from the detonation and travel across the screen in what looks like the same way.

No one from the state broadcaster has admitted to the fraud but, if true, such a famous film would seem a poor choice from which to cull such material.

Top Gun was released in 1986 and was a hit, making a global star of Tom Cruise as the cocky pilot with the nickname Maverick and a co-pilot known as Goose.

It won an Oscar and was nominated for three more and took around £223m at the box office.

However, the success of the film did not - apparently - make the promoters of the People's Liberation Army Air Force pause to think before the footage was shown on January 23.

If the footage is a genuine fake, it would not be the first time that subterfuge has been used by China to try to improve its image.

Some of the more spectacular footage of the Beijing Olympic Games' opening ceremony, featuring fireworks creating "footsteps" across the city, were later shown to have been created digitally, and the young singer who starred in it "live" was actually miming to another girl's voice.

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

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