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What Are the Implications of Political Unrest in the Middle East?
I would disagree with Kumar and I think Egypt would have huge prolonged impact on markets, Middle East and would have geopolitical consequences.
Little bit of geopolitics: after collapse of USSR, US found itself in a new environment, and I am afraid do not still understand it. There were 2 camps, with allies, it didn’t matter are they bad or good, democratic, autocratic, bureaucratic, even cannibalic, no one cared. There was balance of powers. Suddenly enemy was defeated and vanished. Imagine as if you were balancing with someone on a swing and your partner or your balancing weight to be disappeared. Not to fall you need quickly to find a new point of equilibrium, you do not need same gears, same weight (allies). To simplify the matter - What would happen with dollar index if suddenly yen disappears or you were hedging your USDEUR position with USDCHF, and EUR as a currency disappears, US have to “deleverage” from the cold war allies or change set of rules for new era. For sure whole Middle East have to pass through painful process of “political deleverage” of cold war time, including all US allies, Egypt is just one stop in this long way. Sure it would affect markets because it means uncertainty. Egypt does not have oil, but it’s a key player in Middle East peace process, so think unthinkable what happens if peace in Middle East would collapse. Will it effect oil prices? Best scenario would be if Mubarak restores order and remains in power. But for how long ? And this outcome seems very doubtful.
I vote for short stocks, commodities, long USD, oil, gold. Long time trade.
Jan 30, 2011. 07:29 AM
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