Blog Note: ABC News just gave some numbers that the Mubarak family that controls Egypt, may have a net worth of about US$50 billion stashed away around the globe.
The following is from ABC News:
President Hosni Mubarak’s power may have visibly crumbled before the world on Jan. 25 when protesters took to the streets of Cairo, but his peray the wealth of the Mubarak family was built largely from military contracts during his days as an air force officer. He eventually diversified his investments through his family when he became president in 1981. The family’s net worth ranges from $40 billion to $70 billion, by some estimates.
Amaney Jamal, a political science professor at Princeton, said those estimates are comparable with the vast wealth of leaders in other Gulf countries.
“The business ventures from his military and government service accumulated to his personal wealth,” said Jamal. “There was a lot of corruption in this regime and stifling of public resources for personal gain.”
Jamal said that Mubarak’s assets are most likely in banks outside of Egypt, possibly in the United Kingdom and Switzerland.
But what of the average Joe investor, who does not rule a country-but just his family’s wealth? The following are what some investors are saying.
The Following articles are from Seeking Alpha
(1) Egypt, Dollar and History
Any comment on Egypt, and the rapidly evolving political situation there, could look very old by the end of the week. But the odds favor the forced-retirement of long-serving President Hosni Mubarak. Clearly, at this point in time, it is impossible to know whether a change in leadership would be in the interests of the United States or whether it would lead to more or less stability in the Middle East/North Africa.
In the late 1970s, the Iranian Revolution against the Shah was similarly broad-based. Revolutionaries included secular democrats like the first post-Shah president, Abulhassan BaniSadr; devout Marxist-Leninists like Sadegh Ghotbzadeh; and, of course, radical clerics like Ayatollah Khomeini. In the end, the first fled for his life, the second was executed for treason, and the third acquired absolute control, becoming a thorn in the side of the west for the past 30 years.
In contrast, Egypt has been a rock of stability in a volatile region and has been viewed as a friend of the United States. Several factors seem to be undermining this stability. The transition of Iraq, through U.S. force, from a brutal dictatorship into an often-chaotic democracy is clearly providing an alternative for citizens of the Middle East. Second, the Internet is making it harder and harder for government propaganda to prevail. Third is the recent successful revolt in Tunisia.
However, no analysis would be complete without considering the role of overly loose U.S. monetary policy. The Federal Reserve controls the value of the dollar, and the dollar is the most important currency in the world.
When the Fed prints too many dollars, the inflation that results often shows up in commodity prices first. When it lifts energy commodities, countries and regions of the world which export oil typically benefit and have largess to throw around. Egypt is an oil producer and a large refiner, so rising energy prices are neutral to slightly positive for the nation’s economy.
Food prices are a different story. In the second-half of 2010, the Goldman Sachs (GS) Agricultural Index climbed 66%, the most for any six-month period since 1974. According to Egyptian Agriculture Minister Amin Abaza, the country imports 40% of its food. In other words, the impact of a declining dollar and rising food prices has been devastating to the average standard of living in Egypt. No wonder there is unrest.
The Iranian Revolution occurred amidst rapidly rising inflation, when Jimmy Carter was President. And as Mark Twain once said, “History does not repeat itself, but it does rhyme.” When the North Star of U.S. political and economic leadership fades, the world can go wobbly. Free markets, hard money and strong leadership are the answer.
(2) Revolution & Grain
Recipe for a revolution:
- Start with 80 million people, almost 30% of them illiterate
- Pack them into narrow corridors of arable land along the Nile and the Suez more densely than in Bangladesh or the Netherlands
- Double the population of 15-to-24 year-olds during the 30-year reign of a brutal dictator
- Turn growing numbers of university graduates out into a stagnant low-tech economy
- Suppress alternative political and religious views as well as freedoms of speech and association
Egypt is only the most spectacular instance of a popular Arab uprising that has already toppled the Tunisian dictator and sparked protests in Algeria, Yemen, and Jordan.
But the country that matches Egypt’s incendiary recipe more closely than most is the one that has remained curiously quiet of late: Saudi Arabia. The Saudis, of course, have oil wealth Egyptians can only envy. But the concentration of this wealth in royal palaces has not gone unnoticed by Saudi city dwellers.
Saudi Arabia’s newly urbanized population is almost as young as Egypt’s, with a median age of 25; and while the Saudis’ job opportunities are better than Egyptians’ thanks to the petrodollars, they’re still circumscribed by princely privilege and the economy’s dependence on oil. The 86-year-old King Abdullah is not in the best of health. He was quoted as describing Egyptian protesters as “infiltrators” in a supportive phone call to his friend, Egyptian dictator Hosni Mubarak. His Royal Highness has never been in touch with sentiment in the Arab street. But the Street may get in touch with him before too long.
Unrest in the markets, too
And so the measuring stick for this crisis is not continued shipping through the Suez Canal, and not even the outcome of the Egypt protests. The only question is where this populist earthquake will stop, and how many more regimes it might topple.
The threat of popular uprisings across the Arab world is a big positive for grain prices. Arab countries are already major importers of grain, and for the foreseeable future they will attempt to stave off revolution with cheaper subsidized bread, stimulating demand and requiring even higher grain imports. Grain prices have perked up noticeably since the unrest began and were on the rise again Monday, with wheat moving more than 1% higher.
This dynamic is also bullish for oil, because the rising cost of buying off unrest has just given the Saudis added incentive to keep the oil prices high. It also means that even a modest retreat in crude will be potentially destabilizing if it threatens the increased subsidies.
And, ultimately, we’re reminded that the leading oil producer in the world is stuck with a feudal regime that looks more precarious by the day. How long will Saudis tolerate an absolutist monarchy if Cairo follows Baghdad along the democratic road? Guesses on that score could play a big part in the oil prices in the months ahead.
Disclosure: I own shares of the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSEArca: JJG), an exchange-traded note tracking the prices of corn, soybeans, and wheat.
(3) How to Use ETFs to Invest in North Africa Turmoil
By John Nyaradi
No doubt we live in fascinating times, both economically and politically, and this week the world’s focus turned to the rolling political revolution and unrest in North Africa. The outbursts started in Tunisia with the ouster of a long-standing authoritarian leader, and have now spread across the north coast of the continent to Yemen and Egypt — both homes to long-standing rulers in countries suffering from authoritarian rule, depressed living standards and high costs for food.
The political response has been fascinating to watch, as Internet and telephone coverage has been cut off in Egypt, along with reported service disruptions in Syria, since high-speed communication and social media seem to be prime abettors of the spread of unrest and revolution in today’s wired age.
For investors, such situations present immense danger, as political instability almost always leads to economic instability. But with today’s sophisticated investing and trading tools, new opportunities constantly appear, even as fire spreads across the Middle East.
Several ETFs are worthy of consideration for investors/traders with a solid plan and willing to play with fire as these rolling revolutions unfold.
The most obvious ETF and the one closest to ground zero is EGPT, the Market Vectors Egypt Index.
Charts courtesy of StockCharts.com
Not surprisingly, EGPT has been in freefall in recent days, and volume spiked to more than 400,000 shares on Friday, compared to normal volume of 25,000.
For participants who think the worst is yet to come, one obvious strategy would be to “short” EGPT, while people who think that calm might be restored in short order could find EGPT to be an attractive, now vastly oversold opportunity that could come roaring back if/when the political situation is stabilized.
Another option to consider if you are bearish on the region is an inverse ETF with some exposure to this market. One possibility would be EFZ, the ProShares Short MSCI EAFE exchange traded fund.
This ETF tracks the MSCI Europe, Africa and Far East Index and, while not specifically focused on the Middle East, includes such companies as Vodafone (VOD) — the cell phone provider that was cut off in Egypt — and countries like Greece, Spain, Italy and Israel that have exposure along the Mediterranean.
Finally, with civil unrest now approaching and including the oil-producing countries and Suez Canal, one obvious consideration would be the potential for rising oil prices if the conflicts continue. USO, the ETF known as United States Oil, is designed to track the price of West Texas Intermediate Crude and was seeing active interest during Friday’s session.
So, as always, danger always brings with it commensurate opportunity, and there will be winners and losers on both sides of the trade. The situation in the Middle East is a fast-moving, highly volatile and dynamic political drama, and venturing into this region isn’t for the faint-hearted or risk-averse. However, one thing is certain: The old forces of risk and reward will be at work as this fascinating drama plays out over coming days.
Disclosure: No positions in ETFs mentioned. Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions can change at any time.
(4) If Egypt Emerges Democratic, Economy will Bloom
By Adam Sharp
Smart investors follow politics.
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. Ensure your 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 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.
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.
Unique investment ideas, tips, strategies and insights from our team of editors: Brian Hicks (author of the bestselling book, Profit from the Peak), Steve Christ, Christian DeHaemer, Ian Cooper, Nick Hodge and Adam Sharp
(5) Time to Look at Shipping?
1. Egypt situation
We have all seen the pictures of demonstrations in Egypt and regime change in Tunisia. The question for investors now is the following:
- Will Egypt be the next domino, or will Mr. Mubarak somehow find a way to stay in power in the near-term?
- What will happen before we know what the end game will be?
- Will the Suez Canal be closed?
- Will the populations in Saudi Arabia, Libya, Iran, etc be inspired and follow suit?
- Is this driven by food inflation that hurts the general population of these countries?
- Strikes in oil loading ports in the rest of the Middle East?
- Will piracy spread from the Horn of Africa?
I can’t claim to know the answer to this, but if we step back, then what do we know is:
- Situations like this are not settled quickly. They are not one week affairs. Even if he did step down immediately, then what government will be formed afterwards?
- Regime change or attempts to change regimes are messy affairs.
- It makes for very emotional pictures.
What can we expect of Mr. Mubarak:
He has been president since 1981 and is 82 years old. He obviously is not a popular person, but it is also equally obvious that he doesn’t care and that he has (had) staying power.
I don’t think we can expect him to change his way of thinking. Very few 82 year olds do this, so I expect him to resist an immediate regime change vigorously.
What can we expect of the demonstrators:
They have started out rather peacefully and I sincerely hope that will continue. However, it may not as frustrations may build. Let’s imagine that in a week from now people are still demonstrating, but Mr. Mubarak has not stepped down. Having money equals power and if the demonstrators want to weaken his position then taking steps to close the Suez Canal will be an efficient step.
I really don’t know how this will end, but I also think it is fair to say nobody does.
2. Shipping
The shipping business is not a great one. It is very cyclical and capital intensive. It is characterized by low barriers of entry and fierce competition.
Demand is derived from changes in GDP times a multiplier, as global trade generally grows faster than global GDP.
Supply is driven by new orders of ships in good times, and few orders in bad times, and the demolitions of ships at the end of their economic life.
The current situation is one of over supply and order books that are too large. The issue is not with demand.
In my opinion, the only sensible way to invest in shipping companies is when things look negative, wait for global GDP growth to catch up with over supply and then get out.
Time charter rates for container ships are currently in the lower part of historical averages, tanker rates are low and dry rates very low. You can look up the charts on bloomberg.com here: contex, baltic dirty tanker index and baltic dry index as reference.
What would you do if you had the requirement to transport oil, gasoline, coal etc by sea?
I think you would be eager to secure additional tonnage in case you really had to take the long route around Africa. Ship owners, of course, know this too.
3. Conclusion
The combination of low T/C rates, low share prices on many ship owning companies, a quickly growing world economy and a vivid situation that could provide the spark to turn things around to me this makes for a compelling investment case for investing in ship owning companies.
Prices haven’t moved much yet since the Egyptian story hit the wires, but this is because most people aren’t fearful yet. This builds over time as people see and read more and more about it. This is what trends are made from – more and more people adopting the same beliefs.
Going long ship owning companies that benefit from this may also have positive portfolio properties, as it is reasonable to expect this to be negative for GDP growth and a so-called risk off event.
Look for companies that have short outstanding T/C agreements as they will benefit the most.
Another supporting argument is that T/C rates often bottom around the Chinese new year, which is now, so this may help too.
4. Investment implications
This should be USD positive as risk off events are normally USD supportive.
In the tanker space, the following companies should benefit: OSG, FRO, NAT, TK and TNP. I don’t have target prices on the tanker companies.
In the dry cargo space, I use a balance sheet valuation model to calculate the fair value. It is basically net liquid assets + value of long term time charters + market value of ships. As the different companies have different leverage levels, and thereby also risks, I focus on the implied under/overvaluation of the ships: BALT (Ships are +29% undervalued), EGLE (+14%), ESEA (+27%), FREE (+15%), GNK (ships are -10% overvalued), PRGN (fair value), SB (fair value), SHIP (+10%) and SBLK (fair value).
In the container ship space I use a discounted cash flow model. I have written extensively on these companies here on SA so have a look at the articles: SSW (price target of 24.25) and CMRE (price target of 24). GSL is overvalued in this space. Unlike dry and tanker, the T/C rates are actually going up for container ships. They are currently at their highest in years.
I expect the tanker space to benefit the most from this, followed by dry bulk and lastly, container ships.
Related Articles
- Anaslysis: Knowledge@Wharton on Egypt’s “Rebirth of Ancient Land?” (thaiintelligentnews.wordpress.com)
- Mubarak backers assault Cairo protesters in Tahrir Square (thestar.com)
- Three dead as Mubarak loyalists clash with Cairo protesters (nationalpost.com)
- Mubarak backers assault Cairo protesters, 3 dead (reuters.com)
- Hundreds injured as Egypt protests grow violent (nationalpost.com)
- Blood begins to flow in Egypt (nationalpost.com)
- What is modern Egypt? (nowpublic.com)
- Time for Obama to press Mubarak (politico.com)
- Gunfire pounds anti-Mubarak camp in Cairo (msnbc.msn.com)
- The great unravelling: Tunisia, Egypt and the protracted collapse of the American empire (energybulletin.net)
- Poll shows Egyptians favour democracy and stoning for adultery (theglobeandmail.com)
- Egyptian Protests Reflective of a Pan-Arab Uprising (news.firedoglake.com)
- Egypt protests: Tunisia and Jordan unravel, should the West be worried? (dailymail.co.uk)
- How the other Arab strongmen are holding up (theglobeandmail.com)
- “Ethanol and the Egyptian Riots” and related posts (openmarket.org)
- Egyptian Uprising Must Address U.S Interference and the Role of Israel in the Region (nwoandsecretsocieties.wordpress.com)
- Unintentional Revolutionaries (tpmcafe.talkingpointsmemo.com)
- Food Price Rises Contribute to Popular Uprisings in Egypt, Tunisia, Yemen (alternet.org)
- The Egyptian revolution: An interfaith movement – Washington Post (news.google.com)
- Q&A: What’s at stake for U.S. in Egypt unrest – USA Today (news.google.com)
- “Egypt 2011 is not Iran 1979” and related posts (sanfranciscosentinel.com)
- Egypt Turmoil Threatens the Global Recovery (curiouscapitalist.blogs.time.com)
- “Revolution in Egypt – Out of the Frying Pan into the Fire” and related posts (newzeal.blogspot.com)
- Profiting From Egyptian Unrest (fool.com)
- Uncertainty in Egypt Takes Oil North Of $100, Tankers Shed Gains (blogs.forbes.com)
- ETFs to Watch as Egyptian Drama Plays Out (fool.com)
- ADR REPORT-Egypt ETF tumbles as unrest escalates (reuters.com)
- Oil Prices: Egypt’s Crisis Could Hurt Europe First (dailyfinance.com)
- Egypt shows that risk is alive and well (money.cnn.com)
- Egyptians In Saudi Arabia Watch Uprising Quietly (npr.org)
- Persian Gulf Oil Producers Dodge Mideast Unrest With $90 Crude (businessweek.com)
- Egyptian president Mubarak to step down after election (calgaryherald.com)
- Mid-East contagion fears for Saudi oil fields (telegraph.co.uk)
- Experts say Egypt unrest shouldn’t affect gas prices here (charlotte.news14.com)
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