When There's Blood In The Streets

By Joseph Calhoun

500,000 angry Egyptians are protesting in an attempt to get President Morsi to resign after just a year in office. Their complaints vary but a main one is his handling of the Egyptian economy. Until I spent a little time researching the subject, I just kind of assumed that Egypt's economy was based on cotton and pyramid tours but it turns out that GDP is around $500 billion. Unfortunately, with a revolution in 2011 and unrest now with Morsi's Islamist rule, the pyramid tour business isn't doing so well and it is an important source of foreign currency for the country. Their foreign reserves have dwindled from $36 billion in 2010 to a mere $13.5 billion in March of this year before Qatar and Libya stepped in to help (Libya? Really?). Inflation is running at an 8.2% annual rate while unemployment is up to 13.2%. Oh, and by the way, 8 out of 10 unemployed is under the age of 30 and has plenty of time to protest. Europe and the US should take note of that for future reference.

Anyway, the economic picture is pretty bleak in the land of the pyramids. So imagine my surprise when I ran across this headline on CNBC: Egypt's Stock Market Soars Despite Army Ultimatum.  Now, my reading of the situation is that the stock market was probably up because of the Army ultimatum but forget that for a minute. Even amidst massive nationwide political unrest (the army says 14 million people have participated) the stock market managed to put on a fine rally of 4.9% Tuesday. Yes, the market is still down on the year but if your perception of Egypt is similar to mine, you might be surprised to learn that it is only down a bit over 14% on the year. Heck that's a minor correction for an emerging market. 

Contrast that with another country in the throes of popular protests, Brazil. The Bovespa is down 22.5% this year and shows no signs of stopping. And Brazil is a mostly civilized place where bikinis are allowed - hell, encouraged - blessed with ample natural resources and a manufacturing base. It has dramatically expanded its middle class and is described as emerging because, well, it has been. Of course, it is also a place often described as having great promise - and always will. I've been observing Brazil and the rest of Latin America from my perch in Miami for decades and they always find a way to screw up the booms and find a new bust. Are things worse in Brazil than they are in Egypt? I don't know but would you have believed that Cairo is down less than Sao Paolo before you read this?

No, I'm not recommending that you surf on over to your broker's site and buy Egyptian stocks (although as with everything these days, there is an ETF for that). I haven't done nearly enough research to know whether that is a good idea or not. What I am suggesting though is that when it comes to investing it is best to forget what you think you know and invest based on facts, not headlines. And to paraphrase Rothschild, buy - or at least don't rule it out - when there are protestors in the street.

Joseph Calhoun is CEO of Alhambra Investment Partners in Miami, Florida. He can be reached at jyc3@alhambrapartners.com

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