How Will the Uprising in Egypt Affect My Investments?

Egypt Investment

The wheel is still in spin so all we can at this point is speculate on the many possible outcomes of what is currently happening in Egypt.  At least if you ponder about things a while in advance you have a better shot at making money or protecting money than the people who just wring hands and sigh. 

Spin Master

There are many sides to this struggle and they all want to spin it their own way.  The US would like to portray it as democracy being asserted in a highly-controlled country tired of being held down by a strongman (Mubarak).  Iran would portray it as Muslims rising up against a regime that dared to make peace with the devil (Israel).  China spins the struggle as part of the Arab world throwing off the last colonial shackles of being dominated by the West.  There are other smaller players with their own spin on the action:  Israel, Syria and the Palestinians.    

New Pakistan

There is a very real possibility that Egypt could become the new Pakistan:  nominally secular and mouthing words about cooperating with the West and opposing terrorism, but with some elements in the government or military secretly helping support terrorism.  The protestors have some sane elements espousing democratic ideas, but the Islamic Brotherhood is a big player in the protests and they make no secret of their desire to install an Islamic state (like Iran) and negate the peace treaty with Israel.  If this happens or even if they only get a big role in the new government then it could destabilize all of North Africa and embroil the west in the struggle for years to come.  China is not entirely opposed to this outcome and Iran welcomes the possibility.   A new and prolonged struggle in the middle-East could benefit US defense companies such as BA, RTN, LMT and NOC. 

Suez Canal

The Suez Canal is a huge concern among all serious observers in the West, with about 10% of all world trade passing through the straits.  When it was closed in 1956 and 1967 it precipitated huge wars.  Israel could not and certainly would not tolerate its closure this time.  We can hope that the new government of Egypt understands this and treads lightly, but many times we’ve seen Islamic radicals do crazier things.  If the Canal is closed, even for a short while, then many commodities like oil and industrial metals could jump significantly.  You will need to weigh just how long the closure will last.  Under such circumstances domestic producers, e.g. BPT, could see big gains. 

Europe's Lifeline

Europe is particularly dependent on traffic through Suez since a much higher percentage of their oil and commodities make the passage.  If the canal is shut off it could quickly cause a spike in European inflation and a slowdown in their economies as they are starved for raw materials.  If the ECB responded as expected, the ECB would expand the money supply and put even more upward price pressure on commodities.    It would seem likely that the euro would depreciate against the dollar and yen, leading to some trading possibilities there.  

Contagion

One last thing to consider is the risk of contagion.  Iran would love to cast this as an Islamic uprising and export revolution to Libya and surrounding countries.  This would likely increase Iran’s prestige in the region and push them even more to develop their nuclear and missile capabilities.  Oil prices would rise while the economies of the West sank.  The central banks for the US and Europe, already fighting unemployment and slow economies, would create vast amounts of new money and likely cause bad inflation.  Consider these things in your short-term trades and longer-term investments.