The first rumblings of protest in Egypt actually hit international newswires on Wednesday, 1/26. However, world markets didn’t seem to care until Friday, 1/28… on the third day of street riots. And even as the crisis seemed to intensify over the weekend , stocks and commodities continued their march higher on Monday, 1/31.
For some, then, what happens in Egypt is staying in Egypt. A “Why” analysis on the rioting has identified high unemployment, under-employment and sharp disapproval of government direction. When you think about it, that kind of sounds like the United States, but the “Tea Party” protests and citizen anger resulted in change at the U.S. election booth.
What we haven’t seen in the mainstream media coverage is analysis of “Why Now?” Heck, Mubarak has been in power for nearly 30 years, and something that few believed was imminent occurred because… because of social networking? Please!
Actually, the U.S. dollar’s devaluation has resulted in a dramatic surge in commodity prices; most notably, food prices have skyrocketed. It’s one thing to live under an oppressive regime or accept work that is beneath your skill or education level. It’s another thing when you struggle to put food on the table.
So U.S. stimulus spending and Fed quantitative easing play a big role in Egyptian rioting? Indirectly… yes. The exchange-traded note for the Dow Jones AIG Grains Index, iPath DJ Grains (JJA) is up 55% over the last year. Egyptians have had to pay a great deal more for bread as well as a wide range of agricultural products due, in part, to the Fed-inspired decline of the dollar.
From a “cold-hearted” investment standpoint, then, what’s the next move? While iPath DJ Cocoa (NIB) and iPath DJ Sugar (SGG) may have monthly momentum in the double-digit percentage range, the single commodity ETN approach is far too unpredicatable. I’d be more inclined to use a total agribusiness fund like Market Vectors Agribusiness (MOO) before looking to chocolate, sugar, grains or meats.
One additional area of strength that Egypt’s crisis serves to highlight is the strength in the energy sector. The country doesn’t have to be an oil producer to roil a region and cause commodity prices to climb. Again, however, I do not recommend the crude commodity itself. Instead, my strong preference is for the oil services standouts that you’d find in funds like iShares DJ Oil Equipment & Services (IEZ) or SPDR Oil/Gas Equipmen/Services (XES). More oil needed… these are the companies that have the wherewithal to get more from existing wells or extract from offshore locations.
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