We are not going to spend time repeating the headline news from Egypt and the Middle East. Let us get to one specific reason we are maintaining a cash reserve. Violence in the Middle East is dangerous and can spread. That is why we have taken our energy positions up dramatically and are overweight while also maintaining a cash reserve.
Anecdotes are helpful in following these events. Here is one from today’s “NightWatch” report. We will except a few paragraphs.
“The central security office in Rafh was attacked with a rocket-propelled grenade, Al Arabiya reported.”
“Comment: This is the first reported use of an RPG since 25 January. It has not been reported by any other news service, but others have reported troubles in Rafh.”
“With the news focus on Tahrir Square and the President, most services have neglected to report on workers' strikes or job actions. A second day of more and more widespread workers' strikes is a portent of unrest that is not part of the Tahrir Square action.”
NightWatch concludes with these observations:
“The guns - the Army --will now have to decide who will lead the country. Moreover, a power sharing agreement with the (Moslem) Brotherhood suggests that some leadership echelons of the armed forces have become more devout, as in the Pakistan Army.
“Another paroxysm of violence is likely which means that the two sides are still converging, while testing each other's position and strength in the final power sharing arrangement. Egypt is heading towards a government that will have a much more prominent role in government for Islam.
“The outlier in the scenario remains the odd and sudden emergence of the workers and farmers in the movement. They work for the state enterprises and do not seem part of the inner circle of schemers in Cairo. They represent another level of action whose implications might be benign, but are not clear yet.
A final concern is the RPG round, if one was fired, because that is an Army weapon and a signature weapon of insurgents.”
At Cumberland, we view the developments in the Middle East as ratcheting up the risk to markets. US stock markets have seemed to ignore this risk if you measure that ignorance by the headline averages. Drill into the markets and you see energy, materials and industrial sectors outperforming since the Egyptian crisis exploded. Other sectors are lagging. We base this observation on the 300 ETFs we track daily and their relative performance.
As Yogi Berra, said “It ain’t over till its over.” In the Middle East, Egypt and elsewhere, this ain’t over. It is just getting started.
PS. Today will start the official GSE debate. As you listen to the rhetoric, please remember that the GSE mess was a gift from the Congress of the United States. Ain’t we lucky?