Roubini Economist: Egypt Poses 'This' Big Risk to US

With both the Dow and S&P higher on Tuesday, right now it appears investors are more focused on strong earnings and manufacturing data.

But in the days ahead, the market movements may be largely governed by the price of commodities – especially grains such as wheat and oil.

“There are simply too many countries facing food shortages,” writes Jim Bower of Bower Trading, in a note out this week. “It has become a problem that governments must solve in order to stay in power.”

The problem is one of the top concerns among Wall Street and Washington alike.

Rising prices are "leading to riots, demonstrations and political instability," New York University economics professor Nouriel Roubini said during a panel discussion. "It's really something that can topple regimes, as we have seen in the Middle East."

And while food costs could roil the developing world Roubini economist Rachael Ziemba tells Fast Money in a live interview the unrest could trigger a ripple that has a big impact here at home.

“The big risk we see,” she says, “is that if oil prices rise far above $100 barrel, consumption of other goods could suffer.”

In other words, we’ve seen somewhat stronger economic growth figures out of the US and China but rising oil prices could usurp some of that economic activity and weigh on consumers.

And that begs the question - are higher oil prices here to stay?

Instant Insights with the Fast Money traders

Fast trader Joe Terranova is an oil bull and does anticipate higher oil prices over the long-term. “ISM data, PMI data look good,” he says. “It suggests we’re in recovery.” That gives oil bulls a fundamental reason to drive prices higher.

And on Monday’s Fastat 5 he looked at the seasonal aspect of the trade. “Between MLK Day and President's Day is when oil prices typically bottoms. If this is the weakest part of the year, we’re probably looking at seriously higher prices.”

Brian Kelly is also anticipating higher oil. “If unrest continues, oil prices will probably increase and if it subsides and the global recovery continues then oil will probably increase, Kelly says with a sly smile.

The usually bullish Jon Najarian is actually on the other side of this trade. “I will be shocked if Brent continues higher,” he says. “I don’t think there’s a reason for that. If you’re long Brent I suspect you’ll soon be in a world of hurt,” he says.

Steve Cortes sides with Najarian. “US Crude couldn’t make a new high – even with the dollar weak and unrest in the Middle East. That suggests to me that crude story may be ending,” he says.

If you're looking for a 'tell' Roubini economist Rachael Ziemba suggests watching how unrest in Egypt ripples across the Arab world, particularly in Algeria, Libya and Saudi Arabia. "I don’t think there are any immediate risks to supply (in oil)," she says. But watch the unrest in these oil producing nations.

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TRANSPORTS

Elsewhere in the market, Transports topped the tape on Tuesday with the rails and shippers getting a boost from an earnings beat and upbeat outlook from UPS .

What’s the trade?

In the sector I like the rails, says Brian Kelly. Backlogs in new orders should be bullish for rails.

I’m cautious, says Steve Cortes. If you look at UPS the chart is very similar to Amazon which says to me it’s an e-commerce play.

I’d be taking profits in UPS here, says Jon Najarian. I see it as a second derivative retail trade; that is, long between Labor Day and Black Friday and then out.

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FINANCIALS

Financials were among the best performers of the day with Bank of America among the top Dow stocks.

What’s the trade?

In the space, I’m bullish Morgan Stanley, says Joe Terranova.

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BAIDU ALL TIME HIGHS

Baidu hit fresh all time highs

after the China search giant said earnings more than doubled in the last quarter; also the company said revenue per customer climbed 56%.

What’s the trade?

I’m long Baidu, says Jon Najarian. The CEO is saying “we expect we will have a very long period of high growth due to the low internet penetration in China.”

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CHART OF THE DAY: GOOGLE

Take a look at our chart of the day:

Could this be the reason behind Eric Schmidt's departure? Over the past year, shares of Google clumbed 13% while rival Baidu is up a whopping 180%.

What’s the takeaway?

From the Nexus One phone to the decision to leave China, I think Eric Schmidt made mistake after mistake, says Jon Najarian. That’s why I think Google is underperforming Baidu.

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CHIPS

The chip stocks also continued their winning streak on Tuesday with Arm Holdings, the company whose chips are used in the iPhone and iPad, beating on EPS and revenue estimates.

What’s the trade?

The knock on ARM is the high valuations, says Brian Kelly, but I like it on a pullback. However, right now Texas Instruments is my pick in this space.

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TAKE YOUR POSITION: BROADCOM

The traders are closely watching the action in Broadcom, which comes out with earnings after the close. The company is expected to post record profits on strong demand for smartphones and tablets.

How should you position?

I’m seeing more put buying right now, says Jon Najarian. That suggests investors are either hedging or bearish.





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Trader disclosure: On Jan. 26, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (PEP); Terranova Owns (MS); Terranova Owns (POT); Terranova Owns (LTD); Terranova Owns (SU); Terranova Owns (CVI); Terranova Owns (CVE); Terranova Owns (CPX); Terranova Owns (CNQ); Cortes is short (LVS); Cortes is short (BAC); Cortes owns (TSN); Cortes owns (EXC); Cortes owns (MO); Cortes owns (PM); Cortes owns (GS); Cortes owns (MS); Cortes is short Gold; Cortes is long U.S. Treasuries; Jon Najarian owns (FRO), is short (FRO) calls; Jon Najarian owns (GM), is short (GM) calls; Jon Najarian owns (V), is short (V) calls; Jon Najarian owns (BIDU), is short (BIDU) calls; Jon Najarian owns (HPQ), is short (HPQ) calls; Jon Najarian owns (WMT), is short (WMT) calls; Jon Najarian owns (ANR), is short (ANR) calls; Jon Najarian owns (BBY) calls; Jon Najarian owns (AKAM) calls; Jon Najarian owns (MON) calls; Jon Najarian owns (RVBD) puts

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