Two points of view about Egypt's unrest and our markets

By Dian Vujovich

Before the markets opened today, I couldn’t help but think about how the political unrest in Egypt would impact prices. Along with concerns about higher prices on the cost of crude, which, it seems, translates in nanoseconds to the cost we pay at the pump, I also expected the equity markets to suffer today, (1/31/11). But that wasn’t the case for equities anyway.

The DJIA closed up over 68 points bringing it to over 11,891. Oil was down a couple of cents a barrel closing at 92.07. Gold off too. Commodity futures were all up except for those on gold and silver. Advancing issues outnumbered declining ones by a large margin—67 percent to 29—on the New York Stock Exchange.

As for what the pros are thinking about the immediate and short-term future, today I received two emails with info worth reviewing. One was from BlackRock Investments and the other Navellier’s Marketmail. Below are excerpts from each:

•From BlackRock Investment’s Special Report “BlackRock Views on Egyptian Political Turmoil January 31, 2011”:

“On Saturday, January 30, the president fired his cabinet, appointing former air force commander Ahmed Shafik as prime minister and Omar Suleiman, the country’s intelligence chief, as vice president. This has not calmed the situation as tens of thousands of people have continued to protest, and as additional protests are planned. …..Former head of the International Atomic Energy Agency Mohamed El Baradei is emerging as a leader within the opposition forces.…..

“In the near term, it is certainly possible that oil prices could again spike higher should concerns over the Suez Canal or Sumed Pipeline resurface. Over the longer-term, however, OPEC would have the ability to dampen potential transportation impacts should they occur. At present, OPEC has approximately 5.5 million barrels of spare capacity that could be brought on-line if needed….The Suez Canal (which is controlled by Egypt) carries approximately 1.8 million barrels of oil per day and the Sumed pipeline (which runs through Egypt) also carries 1.1 million barrels per day. Based on fears of transport disruptions, oil prices briefly approached $100 per barrel. More recently, however, concerns over the potential closure of the Suez have eased, and oil price volatility has moderated…..

“The situation in Egypt has reminded investors that geopolitical risks are always present and in this case uncertainty is high, both in terms of what will happen and what the potential impact will be……Our overall view, however, is that the degree of market movements as a result of these events have not been overly significant. The situation in Egypt obviously bears close watching, but at this point, we do not believe the turmoil in Egypt will act to derail the global economic recovery or the global bull market in risk assets.”

•From Louis Navellier’s Marketmail titled “Another Strong Week for Stocks – Until Egypt Erupted…”

“Until Friday, the stock market celebrated wave after wave of strong corporate earnings announcements and seemed to “melt up,” despite a huge snowstorm that paralyzed the Northeast. The Dow traded above 12000 each day last week but couldn’t manage to close above 12k. Then, on Friday, unrest in Egypt took the Dow down 166 points, while oil and gold surged. This week, I believe that rising earnings can drive the stock market higher, but only if tensions don’t spread from Egypt to other troubled lands……

“The bottom line is that as long as the Fed, the Bank of Japan and other central banks continue to pump money into their respective economies via quantitative easing, this money has to go somewhere. Until Friday, much of this money was pouring out of bonds and into stocks. Last Friday, it poured into crude oil and precious metals. The fact of the matter is that a lot of money is sloshing around the world looking for a safe oasis. Thanks to strong consumer spending in China, the U.S. and elsewhere, stock markets will likely rise again – based on strong corporate earnings news – but we must also see the Egyptian situation calm down. If Egypt spins out of control and unrest spreads to other countries, including Kuwait and Saudi Arabia, stocks could take another hit, so I will continue to monitor these events around the globe.”

Now, what do you think?