Thursday, February 3, 2011

Egypt & Rice

The events in Egypt have went from bad to very much worse. Mubarak's regime yesterday resorted to violence to quell the protesters. Thousands of "Mubarak supporters".. most of them, as it turned out, were secret policemen.. rode in on horses and camels dressed as Bedouins, swords gleaming in the sun, and attacked the protesters. The Army withdrew it's troops as this was happening, which was a clear change of tactics.. most of the protesters welcomed the Army as protectors of their right to protest. Last night, these same "supporters" opened fire on the protesters. The last figure I found was 300 dead and 2,000 wounded. Shortly after this, the Army arrived and separated the protesters from the "Mubarak supporters" by force of arms. These very bloody events are, in my view, the last desperate gasp of a dying regime. Foreigners.. especially journalists.. have been attacked, including CNN's Anderson Cooper.. twice. Make no mistake.. Egypt is descending into a very ugly end game. Here are a few facts.. apparently the police have been pulled from their everyday duties enforcing the law to deal with the protesters.. and the thugs have taken full advantage as crime, looting and all manner of lawlessness has taken place. Reports of thugs setting up "check points" and exacting taxes for passage is a very dangerous precedent; this is how civil societies begin to melt down.

Egypt's economy relies heavily on tourism, mostly from Europeans looking to leave winter behind and see the Pyramids. Tourism contributes $14 billion to Egypt's economy.. and this has completely dried up. The country's stock market closed yesterday after a few days of clifftop declines. Today the government limited withdrawls from Egyptian banks to $10,000/day as apparently there has been a run on the banks. Within a few days, this number will come down to less than a thousand. The nation's gold reserves are undoubtedly being plundered. The Egyptian Pound has also taken a severe beating.. and these, along with soaring grain prices that caused this misery in the first place, have put very poor Egyptians in a desperate situation. These economic calamities will be hard to reverse in the short term even if Mubarak leaves.

The US today finally came out in support of the protesters and asked Mubarak to step down. Last week I believed that Mubarak would'nt last past the weekend.. apparently the old bugger is pretty stubborn.. indeed he came out and said that he's going to die on Egyptian soil. He also said that neither he or his son will be running in the elections scheduled for September. This was not nearly enough for the protesters, nor should it be. I still believe that Mubarak is finished, and I think the military will in the end escort the old Pharaoh into exile beside his son in a posh London suburb.

During the 2009 financial crisis, the term contagion was bandied about with abandon, and it indeed proved to be true. This crisis.. which I still believe is a financial one at it's heart.. also has begun it's contagion. Protests in Algeria continue, as do relatively small ones in Jordan.. which caused King Abdallah to dismiss the PM and  appoint a new one. In Yemen, President Saleh.. another corrupt dictator.. awoke to 20,000 people in the streets marching and demand his ouster, which I think will probably happen. Of these disturbances, Jordan's appears to be the least dangerous.. there is a measure of democracy there, and the King has asked the new PM to draw up some constitutional changes which give elections more power and the King less. Yemen is a country that unnerves me.. desperately poor, having one of the world's highest birth rates, and with declining water and oil resources (and the aforementioned rise in grain prices), this nations' fortunes are going downhill fast, and the fallout will undoubtedly affect Saudi Arabia much like Mexico's problems affect the US. Yemen might become the third nation in recent history (Somalia & Haiti preceded them) to descend into a kind of chaos with no central government or national currency.

About two weeks ago, investor Jim Rogers announced that he was going heavily long rice.. and quite apparently he was not alone. Rice has gone from under $10 per hundredweight of rough rice at the beginning of 2010 to $16.60 today.. and nearly 11% in the last 4 days.It was about $13.40 at the beginning of this year. Wheat and especially cotton have also skyrocketed this year, with wheat hitting $8.63/bushel.. double what it was just last June. The panic buying and hoarding I described could be beginning on a national level: Algeria bought 800,000 tonnes of wheat this last week, bringing their purchases in January to 1.8mm tonnes.. quadruple their usual purchase tonnage. Part of rice's move in the last couple of days has to do with very heavy purchases by both Indonesia and Bangladesh; Indonesia's purchase was also quadruple their historic norm. Having been a commodities trader, I can tell you that these are pretty serious price moves. Some of it is indeed speculation, but most drastic moves in commodities have an underlying truth in them, and this one is no different. Many traders use "technicals", a mathematic program based on charts, to predict the direction of prices. These technicals are all pointing towards rice reaching $20 in the near future, possibly next week. This would be a very serious event in Africa and Asia, especially very poor Asian nations such as Bangladesh, Nigeria and Pakistan. Remember that in very poor nations, people use a very large portion of their incomes on food, and such price rises are very dangerous as more and more people go hungry. There are rumblings that this could be the beginning of a hyperinflationary storm or a new food crisis.. but for me, these dire predictions are a tad premature. Still, the poor nations of the world will indeed see hunger this year, with Africa and parts of Asia hit hard. Egypt's misery might indeed be the just the beginning.


  1. and so it goes in Egypt I am more afraid of tumbling dominos around the wrold. Many economies are fragile and with the billions that the fed has unleashed upon the world we may be the last man standing. Perhaps that was intended since we cannot defeat them militarily we will starve them into submission. Just a random thought Mr K. Did you see that GAW wasn't able to post? Thank you for taking the time to give us more knowledge on this subject. I didn't even see it coming until you mentioned it last week.

  2. Who would have thought that the real-estate bubble, which was brought into existence to replace the popped Internet bubble, would result in people going hungry in poor countries?

  3. Hi Mr K,
    There are two images that I will remember from the Egyptian crisis, firstly the charge of the camels and secondly the US ordinance used by Mubarak when he tried to intimidate the protesters, F16s and battle tanks. Is there any discussion in the US that your hardware is being used to suppress democracy or the fact that the US gives aid to Egypt to buy your ordinance?
    The list of failed states you give along with the ones that may be added to it are interesting. How far is Mexico off from being added to the list. They have declining oil revenues and increasing food prices. They also seem to be fighting a civil war. Hardly a recipe for a harmonious society. How will the US deal with such a mess on its doorstep?
    Turning to the muni crisis, how is this going to be resolved? Will the Fed buy the bonds or will there be haircuts? Will the sort it out or will they put their heads in the sand?
    How is the weather there. I understand that you lot in Minnesota are a hardy lot and you will take it in your stride. Not like the Pomes who have blamed their contraction on a couple of weeks light snow.
    On a lighter note do you live close to Lake Wobegon and do you know Garrison Keillor?

  4. Hi Bones.. yes there is some discussion in the media about how we may have made a mistake in supporting Mubarak for too long. Many bemoan that we constantly support tyrants who crush citizens who want democracy. But in the places that matter (Wash DC) I believe they are only interested in regional stability and peace.. and of course keeping the oil flowing at a reasonable price.

    Mexico is a nation I know well.. and right now it's a violent mess. Crime, especially along the US border, is completely out of control. Food prices are indeed going up. But Mexico is not Egypt.. there will be no revolution. When Mexicans get fed up with whats happening, they pack up and leave for the US.

    In regards to your question re: bonds, there should logically come a time when the US will have to live within it's means. But my hunch tells me that any global bond catastrophe will not start here but either in Europe or Japan, and my bet is Europe.

    As for Minnesota, we are indeed a hardy lot, and a blessed one.. our agricultural exports are making the state wealthier and wealthier as the price of commodities soar. Unemployment here is much lower than the national average. Lake Wobegon is a fictional town.. and I have seen Keillor, but not talked to him. I went and saw APHC show about a decade ago.. Keillor is a treasure for sure.