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Revolt in Egypt: Two Investment Scenarios


To panic or not to panic, that is the question.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

With regard to the events in Egypt, I am here to try to help you decide if you need to make immediate adjustments to your financial portfolio. Obviously, any thoughts that get published here could be irrelevant 10 minutes after it is posted, so I try to approach the situation through a scenario analysis.

Here are my thoughts. The food riots that started and were exacerbated by QE2 have now moved beyond food costs into straight political unrest. (See also QE2 and the Commodities That Cause Riots.) The political avalanche that started in Tunisia has moved in the most dangerous direction, east to Egypt. With all due respect to Egypt and Tunisia, they have no nukes and not enough oil to matter to the world market. Yes, the Suez Canal is critical to oil shipments, but it is such a pure money maker for Egypt that I can't believe any Egyptian government would give up the income from a closed Suez Canal.

That leads to the "No Panic" scenario. Whatever happens in Egypt, stays contained. Contained means that anything could happen internally, but it does not effect global oil commerce. Whatever effect that may have on the Mideast peace process, it is a State Department problem, and not my problem for the next few weeks and months.

On to the "Panic" scenario. If the political avalanche crosses the Suez Canal and heads into the Persian Gulf, then all bets are off. If Saudi Arabia, Kuwait, or Iran start to have political problems that disrupt oil flow out of Gulf, then it's complete panic time.

Kuwait has addressed the problem directly. Here's how:

KUWAIT CITY, Jan 26, 2011 (AFP) - The parliament of the wealthy Gulf state of Kuwait on Wednesday unanimously passed legislation to grant cash and free food to Kuwaiti citizens totaling over $5 billion to mark national occasions.

The grants, made last week by Emir Sheikh Sabah al-Ahmad al-Sabah, stipulate paying 1,000 dinars ($3,580) to each Kuwaiti citizen plus free distribution of essential food items for 14 months.

Note that this is for citizens of Kuwait. For any foreign workers protesting? You're on the next barge back home. Saudi Arabia may not have the exact same ability, but it has plenty of cash flow to help its citizens and the ability to boot out foreign workers. Iran does not. So the "Panic" scenario most likely involves trouble in Iran that could disrupt oil through the Strait of Hormuz.

I'm in the avalanche stops at the Suez Canal camp (possibly with the exception of Yemen, but again, no nukes, no oil), at least for the next 10 minutes. I'm not in any way in a party-on mode, and I will be watching events in the Persian Gulf closely.

Don't get overly concerned about Egypt. The Gulf should be your focus.

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No positions in stocks mentioned.

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