Friday, January 28, 2011

Always Amazing How it Does Not Matter Until it Matters

Long time readers know one of my favorite sayings is "it does not matter until it matters".  Today's selling is being blamed on Egypt, because the series of disappointing earning reports this morning were completely ignored, as was the miss in GDP.   But Egypt was not a surprise.   We noted when Tunisia flared up in a post on the 16th.

What will be interesting to see go forward is if other countries in the region rise up against their 'elected' leaders.

We waved the flag on Egypt Wednesday.  No one cared.  Indeed, oil was down yesterday even as the Suez Canal happened to be in... well, Egypt.  Today, oil is surging on the same issues that the 'efficient' market ignored yesterday.

Some facts about Egypt, 40% of the population live on $2 or less a day.  They have had 30 years of dictatorship, so what suddenly triggers these things?  The rise in food prices is not the ENTIRE cause but a large cause....

The TeeVee is saying the Kuwait government is quickly running to hand citizens $5000 each to make sure nothing like that happens there.  Amazing what desperation does for both constituents and governments.  Unfortunately many of these countries are not oil rich and can't afford what Kuwait can.

Again this is not *all* about food, but its a trigger.  Egypt has been under dictatorship for 30 years - they did not suddenly decide to push leadership out last week because of corruption at the top.  And the surge in food prices is not ALL about QE2 and our financial speculators running rampant with nearly free Fed money, but it's a substantial factor - reasonable people can argue about it, but the huge run up in commodities in 2007 til mid 2008 and then a huge drop off immediately after argues that the wild prices movements have less and less to do with supply and demand, than the 'financialization' of every commodity on earth.  I wrote in Sep 2010 when Bernanke made it clear he was going to flood the world with another Quantitative Easing program we were going to sell ill effects. 

We saw in late 2007 to mid 2008 the effect of food price inflation on 2nd and 3rd world countries. Mud cakes anyone?  [Jan 30, 2008: Hungry Haitians Resort to Eating Dirt]  But who the hell cares about pricing foodstuffs out of the reach of "those people" [Apr 14, 2008: Food Inflation, Riots Spark Worries for World Leaders]- we have speculators to please in the U.S.  The biggest sin in American policy is "making the markets upset".  As long as the speculator class can take primary dealer money, lever it up 7:1 (down from 20:1 in 2008) and run up the price of any soft or hard asset - it's all good. [Apr 28, 2008: Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin] Heck who the hell cares about Americans affordability of food either [Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks]... thats what the food stamp program is for right?  [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps]  [Oct 30, 2009: Costco to Roll Out Food Stamps Nationwide]   As long as the banking oligarchy and stock pickers on CNBC are pleased, I am pleased.  [Apr 6, 2008: Agflation Hits Rice - Prices Up 50% in 2 Weeks]  Cramerica style.

It is no coincidence when the speculator class levers up with easy money, we have dislocations in pricing.  Those dislocations exist in every part of our market as central banks and governments have created a parallel reality.  But when gold flies up it doesnt really hurt anyone other than those who enjoy buying jewelry.  However, when it causes foodstuffs (and energy) than you begin to affect the lives of billions.  But who cares right?  As long as everything is cool in Davos, that's all that really matters to the 'important people'. The fact these events are happening as the world's elite spend hundreds of thousands a ticket so they can strike business deals solve the world's problems, is a dichotomy of epic proportions.

As an aside, as rich as America is, if we did not have our modern soup lines (food stamps) which now suppress 1 in 7 Americans you'd be seeing Tunisia and Egypt in our streets, I truly believe that.  Nothing pushes people to desperation like a hungry family.  For those who believe otherwise, you are watching the John Galt "free market" at work overseas... having 40M+ desperate people is not what you'd want in this country. 

As for the market, somehow we are below the 13 day moving average - perhaps an emergency Fed meeting will happen this afternoon.  The 20 day moving average is my bogey and that is S&P 1280; a close below that would require a change in risk tolerance as the utterly complacent market might actually have to deal with something other than POMO every day, all day.  All the shorts have been cowered and eviscerated so there is no natural support than exists in a normal market where bears fell like they have a fighting chance.  Hence once the tide turns, it can go very fast. Egyptian black swan eh?

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012