Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Uncertainty in the Arab Street and Rising Food Costs

Politics / Middle East Feb 26, 2011 - 04:30 AM GMT

By: HRA_Advisory

Politics

Best Financial Markets Analysis ArticleEvents in Arabia have been sending flutters through the market.  Egypt, by far the largest Arab state, has shifted into a virtuous economic growth cycle confirming it as an important emerging market regional centre.  That said, it continues to have a high population growth and economic expansion has to be high to maintain current wealth levels.  As street demonstrations go, these haven't been all that chaotic given they lack a pro rallying point.  It is hard to say just what a growing Arab middle class will want beyond a say in its own governance.  It was that middle class that first called for political change, but the poor who are trying to cope with rising food costs have also joined in.  Both deserve some consideration.


Concern about a radical emergence from this call for change is valid insofar as it’s difficult to predict what would come out of disparate voices having their say.  But there is little in Egypt’s past, or the voices of its middle class or its military, suggesting radicalism.  Even though the process of change is still being formed in Egypt, and in Tunisia, it is the broader region’s politics that will now most likely to concern markets.  Baring an unlikely spread of this street action to Saudi Arabia, the protests in Yemen and Jordan are the next greatest areas of ‘contagion concern’.  Both also have western leaning governments and groups agitating for change in a neighboring state. 

A big concern is upheaval in an oil kingdom or cross-border hostilities emerging that toss a lit match into oil markets.   That much is obvious.  Idle urban youth have been the region’s main problem for generations.  This round of agitation is a reminder that this demographic problem isn't going away any too quickly.  So the bigger question now is: where does a youthful population transition to as it pushes away from rule by a heavily centralized wealth base?  To support these calls for democracy in Egypt and Tunisia means accepting the outcome of ballot boxes and that the process can generate unexpected results in its early going.  Markets don’t like surprises, but stability is usually the fruit of vox populi when it flowers in its own soil.                      

In January we cautioned that upheaval might scuttle the market during this period of shifting geopolitical balance for which a new handbook about dealing with the unexpected still needs to be written.  That was said in the context of US-Sino relations, at least in its primary sense.  Markets have certainly been riled by these unexpected events in Egypt.  Does this fit our concern?

It does insofar as Egypt’s stability has been important to the mid East balance.  Fear of chaos there is shared by just about everyone and this should include China.  Of course China’s leadership also fears agitation for democratic change.  Direct involvement by China in Mid East doings is likely to be limited, but this sea change could speed along writing some of that new geopolitical handbook.  And, how the US deals with allies in transition may influence how China deals with events closer to home. 

What comes next from the Arab contagion is still an open question, but it’s important to note that Algerians have been joined by Yemenis and Jordanians in a focus on rising food costs.  Food, more than any other commodity, can almost instantly morph into an issue that topples government.  Rising metal prices that are our stock in trade can often be passed on since they are only a small part of many end-use costs.   It’s tougher to avoid passing on food cost gains.  The impact of higher food prices is hurting poorer classes across the developing world.  And, unlike the grain price spikes in 2008 the current shortages aren’t about a bio fuel craze.  Weak harvests and more meat consumption are creating real shortage.

Because it’s a large part of the cost basket, food is also driving inflation rates higher in the growth economies.   Demand push is driving up costs across many sectors in these economies, but food is increasingly the main culprit.  Central banks in a number of growth regions have started to raise interest rates again.   BRIIC countries have all done so, and there is little sign that trend will end soon.   The most recent rate increase by China did cause a hiccup in the copper and other base metal markets, though so far just that.  Inflation rates are climbing in enough areas that even a rate increase by China did not spook the gold market this time.   Buyers seemed more worried about inflation than a potential direct impact on currencies. 

More rate increases in short order would be tougher on base metals.   Base metals are economic growth barometers.  Metal prices may pause on further sign that the governments of the economies doing all the buying in the metals space are serious about cooling their economies.   We don’t expect anything too dramatic in terms of pull backs, but base metals are priced for perfection right now so a slow down won’t be shocking.  Precious metals will be supported by inflation concerns as well as concerns about the Arab and other restive Streets.

Unfortunately, its unlikely rate increases will have much impact on food prices.  The good news is that higher prices for farmers spread incremental wealth gains pretty broadly.  It’s no coincidence that one of the best growth regions in the next few years will be Africa.  That is a direct result of higher commodity prices. 

Higher food costs because more people can afford them are obviously a good thing.  Alas, agriculture has supply constraints just like the mining sector does, even before random weather events are factored in.  Like the metals market, it’s a pricing issue that may wax and wane but won’t go away for a long time.  It’s an issue that bears watching.  The poorer classes in many developing countries can to put off buying a fridge, but can’t put off buying the stuff that would go into it. 

Like most other gains, higher food prices are a good news/bad news story that will take nimble markets, and politicians, to manage.  Those that lack flexibility may find themselves swept away.  Adjustment will eventually get made to the new cost regime.  In the mean time there will be opportunity for those in agribusiness sector who focus on improving yields.  Bigger names in the fertilizer business such as Potash Corp of Saskatchewan (POT-TSX, NYSE) and Agrium Inc (AGU-TSX, NYSE) should be in for continued steady growth, and there are increasing numbers of junior companies on our radar screen that may do very well by focusing on resource building for this increasingly important market space. In fact, the growth in the bulk minerals demand is generating the best market for start up opportunities the space has ever seen. 

It’s certainly true that Arab politics has been reminding us that we live in interesting times, but unlike some we don’t believe that such times need to be viewed as a curse.  A broadening of governance in the Arab world will generate the same benefits that it has elsewhere.  That will in the longer run is also the best route to dealing with the rising food costs since it is part and parcel of open markets thinking.  

Ω

It’s a secular bull market for metals and resources. We’ve been saying that for ten years. And we’ve been right. HRA initiated coverage on 19 companies since early 2009 – the average gain to January 12, 2011 is 309%!  Click here for more information on HRA Advisories.

By David Coffin and Eric Coffin
http://www.hraadvisory.com

    David Coffin and Eric Coffin are the editors of the HRA Journal, HRA Dispatch and HRA Special Delivery; a family of publications that are focused on metals exploration, development and production companies. Combined mining industry and market experience of over 50 years has made them among the most trusted independent analysts in the sector since they began publication of The Hard Rock Analyst in 1995. They were among the first to draw attention to the current commodities super cycle and the disastrous effects of massive forward gold hedging backed up by low grade mining in the 1990's. They have generated one of the best track records in the business thanks to decades of experience and contacts throughout the industry that help them get the story to their readers first. Please visit their website at www.hraadvisory.com for more information.

    © 2010 Copyright HRA Advisory - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    HRA Advisory Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in