Experienced investors follow politics. It’s practically required today, as economy and politics are increasingly, and disturbingly, intertwined.
Budgets in the United States and EU are hitting the breaking point. Dictatorships in the Middle East are being overthrown.
Now is a time to pay attention, and ensure one’s financial affairs are in order.
The next few years will be a transformative period for the world. It could be every bit as big and important as the fall of the U.S.S.R. — bigger, maybe.
Imperialism, oil, and the dollar. These are the trends that matter for the next decade. How events are (mis)handled by politicians means everything — for investors and the world.
The gold bug lesson
Back in 2000, what led early gold bulls to buy at around $300?
Primarily, an understanding of four things:
- Fed easing and moral hazard fueled the bubble.
- People are in denial about fundamental problems.
- Politicians are dependably stupid and short-sighted in nature.
- Further money printing is easier, in the short term, than more rational alternatives.
Few recognized the meaning of these observations at the time. Wall Street didn’t. I certainly didn’t (in my defense, I was 20 years old and didn’t have a care).
In the 11 years since, gold has gone from under $300 to north of $1300. The Fed, gold, and inflation remain a key theme today.
But the amazing speed with which revolution is sweeping the Middle East has taken center stage. The implications are impossible to overstate.
Revolution in the ME and oil
Yesterday, the price of Brent crude for March delivery surpassed $100.
The same contract traded for $76 in August of 2010, as this chart from ZeroHedge.com shows:
If Egypt isn’t a major producer of oil, why are prices spiking on unrest?
Three words: House of Saud.
If the regime in Egypt is overthrown, Saudi residents may start to rethink the state of the Kingdom. And if analysts get a whiff of revolt in the Kingdom, oil will go through the roof.
For now, I suspect oil is the best investment angle. My colleagues at Energy and Capital have been all over the oil story for years.
But there are other opportunities emerging..
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Waiting to invest in Egypt
If a real democracy takes hold in Egypt, the investment opportunity will be tremendous. An economy never reaches its full potential under martial law.
So one investment I am watching closely: EGPT, an Egyptian ETF. Egypt has the potential to be a vibrant, growing economy — one with 2.5x the population of Canada.
But for now, I’m waiting for confirmation that the revolution will succeed. Obstacles remain, but some signs are encouraging.
As I write this, some reports say over a million Egyptians are rallying in and around Liberation Square in Cairo.
Everything I hear from the ground indicates a peaceful, even euphoric atmosphere. Volunteers are manning checkpoints, handing out food.
That shouldn’t come as a surprise. These are an educated and secular people who were subjected to the rule of a tyrant for 30 years.
For now, Mubarak isn’t backing down. Neither is the U.S. in their backing of him. If he is forced out, America appears poised to push for transition to his top consigliere, Omar Sulieman. That certainly won’t do the trick, but it appears to be the game plan for now.
The TV is on in the background, and I hear a CNN anchor. She is focused on chaos and fear, rather than hope for democracy. The U.S. just ordered the evacuation of all non-essential personnel from Egypt.
Let us hope the comparisons to Tiananmen Square do not prove accurate.
Fighter jet fly-overs — a hundred feet over protesters’ heads in Tahrir Square — do not inspire confidence. Only fear and anger.
We will continue to watch these events unfold with great interest.