Middle East Crisis – Saudi Arabian Tanks????

Too much exogenous risk

HedgeFundLIVE.com –
Rumors flying that Saudi Arabia sending tanks in to Bahrain. Just rumors. But th
is is how these things start the downward spiral. Bahrain decides to free a Shii
te activist, and sure enough he warns of violence. In fact his exact words were “M
y anticipation is that the situation will lead to more bloodshed”. Iran is kidnapp
ing opposition leaders. Libya’s civil war doesn’t seem to be ending any time soon. I
had though Kaddafi would be dead by now but clearly I underestimated his firepo
wer. Sanction and expelling him from the UN will accomplish nothing. The Middle
East will deteriorate before things get better. Even Egypt is still a mess. What
a great sign for the management of the Suez canal, that the first act of the ne
w management is to allow Iranian warships through, something we have not seen in
over 30 years. Given that half of Egypt’s population is under the age of 30, it i
s a brand new world for them. One in which Iran is apparently viewed through a n
ew set on lenses. The wealthy Arab buying binge that we have seen this past deca
de is coming to en end. Our own consumers will soon give pause to their spending
habits as they watch the price of gasoline drive higher than $4 a gallon. I kno
w I will. Yemen is perhaps the most unnerving in that it will ultimately become
a breeding ground for al-Qaida. As I write this I see that Fitch has downgraded
Libya 3 more notches. Isn’t that ironic that they continue to be a reactive agency
. I personally believe that just the mere possibility of issues spreading to Sau
di Arabia would require a negative watch out of the ratings agencies for possibl
e downgrades. They were quick to do it for the Spain, Portugal, Greece, and Irel
and. The domestic media seems to steer clear of the massive coverage of the Midd
le East, that isn’t to say that they aren’t covering it, it is just not as big a dea
l as say the OJ Simpson trial, Or the giant recall of Toyota’s automobiles. Finall
y our own government seems completely befuddled by all of this. How could they n
ot be. We have apparently been backing the wrong guys; our greatest concern seem
s to be oil and then human rights. Hillary Clinton is the wrong person for the c
risis we are facing and Obama has zero experience in this arena. Folks, we have
a serious problem and we all seem to want to ignore it. If you believe the crisi
s in the Middle East has no impact on us, like I hear many say, please think aga
in. The flash crash occurred on the day we all watched Greek protestors clubbed
in the street. Portugal and Greece debt issues dropped the markets over 10%, wha
t do you think will happen in an all out Shiite and Sunni battler in some of the
realms of the most important oil producers in the world. One of my greatest con
cerns is what we don’t know. We don’t know how much exposure the European banks have
to the Middle East. We do not know what changes the new Egyptian government wil
l make to it constitution and to its peace treaty with Israel. And we don’t know w
here to park the fifth fleet, when Shiites gain a political voice in Bahrain and
potentially kick us out.
The positive consumer numbers we have seen recently were pre the Middle East cri
sis. I expect the next set of numbers to tell a different story. We will not get
the leadership in the market as we have in the past from names such as Goldman
Sachs and Apple. It is the Oil and energy name that are supporting the indexes.
That trend typically breaks, as the underlying commodities will disconnect from
the equity related names. $120 oil will not translate to higher stock prices for
XOM and CVX.
I will save my bearish thoughts on our domestic issues for my next blog.
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