Thursday, February 3, 2011
Egypt & Rice
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.