We don’t have much to say about this week’s performance other than the main equity indices in the U.S. and some in Europe made post crisis new highs before being hit on the political plague coming out of Egypt. Interesting that the Russell 2000 was up for the week, which tells us there are just not a lot sellers out there and those who shorted the Russell last week were forced to cover.
Commodities x/foods remain relatively weak although oil and gold bounced Friday on geopolitics. The emerging equities, especially Latin America and India continue to get hammered. Brazil and India were down over 3 percent for the week.
There is tremendous noise and commentary about what is taking place in Egypt. Though chaos and anarchy currently reign, this is not an anti-American Islamic revolution. This was started by the twitter generation. The Egyptians want change and democracy not fundamentalist Islamic law. We even hear reports of Muslims and Christians working together.
The Arab Street has been perceived as passive and afraid to stand up to bullies. This was reinforced somewhat by what took place in Iraq after the fall of Sadaam. The bloggers and Facebook sparked this and Egyptians have had enough of repressive government. This is an earthquake that will send tremors and could spread throughout the Mid-East and, we believe, could embolden the modernists in Iran and result in toppling the Islamic regime.
We see the possibility of positive end game here though the road will by rocky and filled with fear, uncertainty, and volatility. Let’s hope and pray the positive plays out.
This is no time to be a hero, however. The markets are over extended, political risk is on the rise, and uncertainty is increasing. We lightened up on longs, increased shorts and took some oil and gold on Friday. We’ll let the markets come in and are making a shopping list.
We just don’t think equities get pounded as hard as many are expecting. This will surprise and catch the shorts offside. In the meantime we’re staying long political risk through our gold position as it looks like the yellow metal has put in a bottom at $1311, which is our stop loss. Stay nimble, stay ready.
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