by Addison Wiggin – February 22, 2011
Why did Libya send oil up and stocks down? It's not all about the oil…
Byron King's firsthand recollections of another hot spot… "We had better batten down the hatches"
Rick Rule on the "Black Swan" factor behind gold and silver's latest moves
Tuesday data points: Housing down, consumer confidence up
Reader asks us to reply to our "narrow and somewhat feckless" view… We oblige
Tunisia? Nah, not so much. Egypt? Meh. Bahrain? Almost. It took Libya to really get a rise out of the markets.
Or a fall, depending on what asset class you’re looking at today.
Only Libya ranks high enough on the list of the world's top oil exporters to register a reaction. The CIA Factbook ranks the desert nation No. 15 in exports:
Bahrain, by contrast, ranks No. 49. But sitting, as it does, close to Iran, the island nation gets a few extra brownie points for strategic importance.
Shell, BP and Marathon are but a few of the international oil companies pulling their workers out of Libya and shutting down operations. ExxonMobil, ConocoPhillips and Occidental haven't said much more than "no comment."
As a direct consequence, the price for a barrel of the black goo has reached a level last seen before the panic spike in 2008. Brent crude is up more than $1.50, to $107.33. West Texas Intermediate is up over $7, to $93.33.
Other headlines from the region aren’t helping. Iranian warships are passing through the Suez Canal, something the Israelis call a “provocation.” And Somali pirates have killed four Americans aboard a yacht hijacked Friday off the coast of Oman.
But the Libya story is more than that of a major oil exporter shutting down. It was one thing for Tunisians to rebel against a government with a weak army… or for Egyptians to rebel when the army largely refused to shoot at them.
But it’s another thing altogether when Col. Gaddafi sends in warplanes to strafe crowds of Libyan protesters… and the protesters keep showing up.
Neither has it been a cakewalk in Bahrain. If you've got the stomach for it, there are a number of disturbing videos posted on YouTube detailing the level of violence being unleashed by the respective governments on their own citizens.
“Back in the 1990s, I spent time a fair amount of time in Bahrain,” says Byron King. “Bahrain is about 70% Shiite and 30% Sunni. The Sunnis run the government, industry, business, banking, commerce. The Shiites are consigned to the other side of the camel tracks.
“I recall driving around Bahrain and encountering these surly-looking groups of underemployed young men — mostly Shiites — who were locked out of the economy. Nothing to do but smoke cigarettes, make a few dinar in the underground economy… and nurse grudges against the guys on top.
“It struck me even then that Bahrain was a pot that would boil over, sooner or later.”
We’re just about there. The Shiites came out in force last week to demand a constitutional monarchy. This week, the Sunnis are proving they can stage their own demonstrations.
“Bahrain is mile after mile,” Byron continues, “of gated communities and guarded compounds — gated and guarded in every direction. The guards keep people out, and keep an eye on the people who are on the inside, as well.
“The Bahrainis talk a good line about how 'modern' they are, how Western, what an open society they have, etc. Yes, all true… the rich kids go to good schools, the airport is nice, the cell phones work, you can get good, fresh food in the supermarkets, lettuce grown in greenhouses, and there are some great ristorantes — Italian food, Thai food, Japanese sushi!
“It's all fine… until the top guys feel threatened. Then they'll break heads with the best of 'em.
“Across the Middle East, we're watching a large-scale earthquake occur within Arab-Muslim culture,” Byron concludes, widening the scope, "the rekindling of a thousand-year-old rift between the Sunnis and Shiites and the breakdown of secular military dictatorships — all at once.
“In the past 70 years, we've seen nations collapse… Germany, Japan after WWII. We've seen empires collapse, the USSR. We've seen upheaval in global relationships like those in the 1990s, as the 'Soviet Bloc' unwound.
“But we've never seen an entire civilization in upheaval as we're now seeing across North Africa and the Middle East. We've never seen something like what's about to happen in the Arab world.
"We had better batten down the hatches for this one. And do our best to invest around it,” which is exactly what Byron proposes in his New War presentation. If you haven’t watched it yet, time’s a-wasting. Another couple of weeks and its boldest forecasts may pass into history.
Stocks are swooning in the face of all the aforementioned turmoil. The Dow is off 100 points, the S&P down 15.
Gold — which surged on Monday as Col. Gaddafi addressed his people from secure, undisclosed location — is consolidating today. The spot price as we write is $1,403.
Silver, which broke through $34 yesterday, has retreated to $33.37.
“In addition to the broad debasement of currencies and incipient inflation in the developed countries,” says Vancouver favorite Rick Rule, “there is also the possibility of some type of 'Black Swan' event that will provide major upside impetus to gold.”
Rick will join us again this summer in Vancouver July 26-29 for the Agora Financial Investment Symposium along with several of his new associates from Sprott Asset Management. Early-bird registration is still available by phone. Call Barb Perriello at (800) 926-6575.
Home prices just fell by the most in a year, according to the latest Case-Shiller home price index. The December figure was down 2.4% year over year. That was right in line with the Street’s guess.
At 130.4, the index sits very close to the low of 129.2 reached in the first quarter of 2009.
Housing gloom notwithstanding, consumers are feeling optimistic, if the Conference Board’s consumer confidence index is any indication. At 70.4, it now sits at a level last seen in early 2008.
The FDIC shuttered four banks before starting the long weekend. Two were in California, two were in Georgia. Combined, they had about $1 billion in assets.
The 2011 bank failure tally is now 22.
“The Economist ripped off your movie title,” a reader pointed out on the blog site. Sure enough, they did.
Geez, first Glenn Beck… now The Economist. What do they say about imitation and flattery? A citation would be nice…
“I trust this space will be made available for a response to your rather narrow and somewhat feckless view of Nicaraguan history,” writes a reader launching a lengthy screed inspired by our reflections from Central America last week.
“In balance, you might mention the U.S. mining of Nicaragua's harbors during the Reagan administration, severely limiting import of anything. That single unmentioned fact goes a long way to explaining shortages.
“You might mention the Contras’ unauthorized and unlawfully funded war against the Nicaraguan people: bombing of bridges, health centers, water treatment plants, all within the sovereign boundaries of Nicaragua.
“You might mention the CIA-funded war from John Hull's ranch in San Carlos, Costa Rica: cocaine headed north to the U.S. cities, exchanged for money which purchased arms and guns which were used against the Nicaraguan people. In the eyes of much of the world (and North Americans with a sense of historical justice), these actions were terrorism, pure and simple.
“The White House/MSM histrionics of the time, that Nicaragua, the hemisphere's second poorest country, with a population of less than 5 million, posed ANY threat to the U.S. were laughable then and pathetic now. Sure, the shelves of La Colonia Supermarket were bare; the Nicaraguans were hungry, but abject poverty in Nicaragua was nothing new; starving poor people to make political points is medieval.
“Be consistent in your opposition to empire in whatever form it takes. The Sandinistas ended up with large parts of the crippled economy and an empty national treasury… dumped in their laps because the Somoza dynasty controlled huge swaths of the economy, plantation-style.
“You might recall that FDR said of the father of overthrown dictator, 'Tacho' Somoza, 'He may be a son of a bitch, but he's our son of a bitch.' His son, 'Tachito,' of course, stole most of the post-1972 earthquake aid and shipped it off to Miami, left Managua in ruins and bombed his own people with U.S.-provided planes for good riddance. Somoza the dictator fled to Miami.
“Yes, indeed, the Sandinistas made lots of mistakes and clamped down hard on dissent, but their efforts pale when compared to the abuses being foisted on the American public right now in the form of the Patriot Act. Please show some balance in your retrospective view of history. ”
The 5: Indeed.
“When I took advantage of your acquisition of Laissez Faire Books," writes another who has been following our debate over the merits of capitalism, "I ordered and am now reading, for the third or fourth time, Atlas Shrugged.
"It's been at least 40 years since I read it,” the reader says, but he finds a "frightening similarity" to events today. “Our entire system is broken and piecemeal patches are not going to save it. Read Atlas Shrugged. It's more pertinent today than it was in 1957.”
The 5: We got a similar note from our friend Greg Stemm at Odyssey Marine over the Christmas break. It might be worth reading the book again before the movie comes out, on April 15.
The 5 Min. Forecast
P.S.: Shares of Intuit (the TurboTax company) jumped 8% on Friday after a decent earnings report. For readers of Options Hotline, the move propelled their INTU options play to a 133% gain in just one week.
Last week also saw another Options Hotline play reach a 105% gain after three months. Editor Steve Sarnoff’s next recommendation is due this weekend. To get on board, look here.