Egypt: A Real Reason for Investors to Shed Risk?
The "Fast Money" traders on Monday wrestled with how the market would weigh the impact of Egyptian unrest on the global economy.
RiverTwice Research’s Zachary Karabell anticipates a muted reaction. Karabell did not see Egypt’s problems as cause for a broad sell-off. Egypt, he cautioned, has a relatively small impact on the global economy.
“The Suez Canal is more of a logistical nuisance,” Karabell said. “It adds some cost to oil and to shippers. Egypt is a major cotton supplier and you could see further increases in that, but these disruptions are more equivalent to droughts and fires.”
In other words, he thinks much of the risks specific to Egypt’s economy have been priced in.
What the market was not yet accounting for was the impact of a future fundamentalist Egypt on the Middle East as a whole, Karabell said. The fear that Egypt, a Western ally, could become the next Iran is real, Karabell said. Though, at the moment, the fundamentalist Muslim Brotherhood did not appear to be the alternative to Egyptian President Hosni Mubarak, he said, any power vacuum in the Middle East was reason for investor concern.
Still, Karabell did not recommend selling based on such future what-ifs.
“Vacuums are something to watch, but that is different than changing your entire strategy based on a what if,” Karabell said. “There is something immature about freaking out about ever tweak of the global mouse.”
Kanundrum Capital’s Brian Kelly worried, however, that Egypt fears could be the last straw for investors already wary of the global recovery. He said corporate gross margins have steadily declined, giving investors plenty of reason to sell without added geopolitical uncertainty.
“Whether this sell-off is simply a correction of the beginning of a bear market depends heavily on the ability of central banks to control inflation,” Kelly said, adding that any signs of companies passing on prices could send buyers running for the exits.
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