After a week or so of lead time things in Egypt obviously escalated on the ground in Cairo which appeared to have a meaningful impact on equity prices in Friday's session.Of most interest to me was that despite the slide in gold this year, at the point of genuine political uncertainty gold went up. As I've noted before we own gold because no matter the price today I expect it will go up tomorrow should there be some sort of external shock. I think the current events in Egypt would count as an external shock.
Gold going up in this circumstance is a matter of relying on the markets "working" they way they are supposed to which cannot be perfect but it is a little reassuring that to see gold react this way. We got an even larger pop from our holding in Suncor (SU) as anything that remotely threatens middle east oil makes the Canadian oil sands look more attractive.
Not surprisingly most everything else went down a lot on the day including our exposures to Chile, Israel, Brazil and a couple of thematic ETFs. I'm not terribly concerned with how long this takes to play itself out so much as understanding (and reiterating for clients) that for as long as the Egypt story does go on there will be certain market segments in a diversified portfolio that struggle. It is also useful to remember that if this were to turn into something that lasts a couple of weeks taking 10% out of the market (not my expectation) that there would be nothing unprecedented about it. And if this is not the event that scares the market for two weeks and 10% then in the future there will be an event that does.
As a side note I was puzzled by Bob Pisani's continual updates on the Market Vectors Africa ETF (AFK) which he said is 20% invested in Egypt as this story evolved during the week. I saw him give this same general update about AFK numerous times but what about the Market Vectors Egypt ETF (EGPT)? Wouldn't something that is 100% Egypt tell a more complete story than something that is 20% Egypt? I actually emailed him to point out the existence of the fund (as I'm sure many people did) but I never heard any mention of it from him. Maybe I missed it but this was pretty funny in an odd sort of way.
13 comments:
Good morning, Roger. Your post is reassuring, thank you. I'm sure the volatility is on investors' minds this weekend.
Have you given any thought to using a short etf like EEV to protect your EM holdings as you do when the broader market violates the 200 dma? I noticed in Barron's that at least one advisor has done so, even though EEM as a proxy is still above the 200 dma.
I ask only because you've expressed many times your strategic interest in shifting more portfolio assets to foreign holdings.
Thanks very much.
Egypt was damn distraction.
It was most important to cover Maria B. in Davos (wearing the latest fashion). Catch her interview the with CEO of B of A?
Maria: why are the mortgage losses to high? Demographics?
CEO: well, you know we did buy a company called Countrywide...
Clueless as usual. At least she didn't use her "low & sexy voice" like usually does when at Davos.
Interesting to me is how major external events are handled by the President and his team.
It will be telling how President Obama and his top foreign policy appointee, Hillary Clinton, react to this implosion within the Middle East.
History judges sitting Presidents not by the events they manage, but how they respond to the unexpected.
T
T, you are correct. In 1953, the Eisenhower administration helped install the Shah of Iran, which resulted in a pro-Western Iran for a quarter of a century. In the late-1970's, the Carter administration fumbled the ball, which resulted in the Iranian Hostage Crisis and the Iranian state of today. We'll see if Egypt becomes Obama's Eisenhower moment or his Carter moment.
Maybe AFK got the mention because CNBC has a business relationship with Market Vectors. I wouldn't be surprised.
yeah but EGPT is also from Market Vectors
oops I now noticed that both funds you mentioned were Market Vectors. So nevermind....
"As I've noted before we own gold because no matter the price today I expect it will go up tomorrow should there be some sort of external shock."
Isn't this basically another application of the Greater Fool theory of investing? The historical record doesn't seem to support that expectation, there are no cashflows to support that expectation, there is no change in the (tiny) value-in-use to support that expectation.
Why, then? It seems a bit foolish to be honest.
historical record doesn't seem to support that expectation
i would disagree
A) you think these bozos on cnbc are smart
B) If he was told to read how the turmoil in Egypt affected the price of big macs he would do it. It is his job.
The president of the United States can't bring himself to talk about democracy in the Middle East. He can dance around it, use euphemisms, throw out words like "freedom" and "tolerance" and "non-violent" and especially "reform," but he can't say the one word that really matters: democracy.
Perhaps it is because America is no longer a democracy but corporate facists.
i would disagree
How do you reconcile that view with the stable gold price for the two decades between '83 and '03, then? There were plenty of external shocks in the period and gold almost never moved out of the 300-400 range. And the times when it did don't seem to be related to shocks, especially of the Egypt type.
any move from $300 to $400 would have been a huge move IMO. gold went up in the crash of 1987, up when the UAL LBO failed, up when Kuwait first became an issue in 1990, up in the Peso crisis, up slightly when the Asian contagion first happened and then sold off quickly after, up after 9/11 then sold off quickly after.
It did not go up in the LTCM/Russian debt default.
A few months after 9/11 is when the current huge move started.
If you are the same person who commented about a lack of cashflow, yes this what people buy when they are afraid.
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