You Say You Want A Revolution

You say you want a revolution
Well, you know
We all want to change the world
You tell me that it's evolution
Well, you know
We all want to change the world 

Watch & Listen here: Revolution - The Beatles

Tumultuous protests have spread across Egypt as hundreds of thousands of demonstrators, demanding an end to the 30 year iron fisted rule of US backed President Hosni Mubarak, poured into the streets and clashed with police. Should we be worried here in the US? Is this going to impact our economy, our markets? Maybe, and maybe. I know, not a great answer, but this is a very fluid situation. 

Another question to be asked is why now? First Tunisia, then Egypt, and Yemen, is there a common thread other than long-term oppression. Yes, there is a common thread to the timing of these uprisings. The Fed's massive printing of dollars has led to commodity inflation around the world, and commodity inflation (especially food) strikes the worlds poor the hardest. When you have 25%+ unemployment among the young and they are hungry, angry, and have the ability via social networks to organize, you get revolutions. 

Rising Inflation + Poor + Unemployed + Ability to Organize = Revolution

We as Americans tend to sympathize with revolutionaries, since our country was born out of revolution, but these revolutions may not turn out to be about freedom. I like many of you have heard the stories about recent travelers to Egypt. One associate of mine vacationed there last year and was very uncomfortable, almost frightened by the pressure on women to be clothed from head to toe, and the overall unfriendliness towards Westerners. The poverty was stark, with thousands of homeless and a real sense of unrest bubbling under the surface. Some in our government are saying that this uprising is about free speech and an open society, I'm not too certain. These uprisings may have much more to do with religion and hatred of the West than they do about free speech. 

Equities are taking a breather, while gold and oil are seeing sharp gains. Should be an interesting weekend.

You say you got a real solution
Well, you know
We'd all love to see the plan 

This weeks State of the Union address offered very little in the way of new policy, but did reveal two strategic decisions made by the administration. First, the White House has decided to move to the center with some free market rhetoric, a few personnel changes, and meetings with business leaders. Second, the administration seems content to let the Republicans take the lead in setting this years legislative agenda. The President pushed for increased spending (oops, investment) on alternative energy and infrastructure. Overall, the address was a minor footnote in Presidential history.

I did catch an interesting interview given prior to the State of the Union address, by Marc Faber, author of "The Doom, Boom, and Gloom Report," on Bloomberg TV. I've followed Marc for a couple of decades and he is a very outspoken investor. Though I don't always agree with his opinions he does make you think, and he doesn't mince words. Some highlights. When talking about President Obama, "I think he's done a horrible job and I think that will continue, I think he is a dishonest person, and nothing has changed... Some politicians are more honest than others. I don't think that I have a very high regard for politicians, I have a high regard for businessmen and for people who work, and not for people who abuse the system continuously. And in comparison to other politicians, I think he came in on a platform as a president that would want to change the government in Washington, and actually he's made it worse... We foreigners, we just laugh at someone like Mr. Obama. I was very critical of Mr. Bush, but at least he had one line and he stuck to that line, and at least he set out to do a thing and he was relatively straight on the thing that he did. He may have been wrong, but at least he didn't change his mind continuously, and didn't prostitute himself." Worth a watch...

Faber Expects 10% Drop in S&P 500, Says Stocks Expensive: Video

But when you want money
for people with minds that hate
All I can tell is brother you have to wait 

Whenever times get a little crazy, filled with turmoil, noise, and fear, I find it is best to focus on the basics. Simple blocking and tackling. Similar to what our Steelers are doing this week and next. One of the reasons I think the Steelers should be favored in this Super Bowl is the simple fact that they have been there, done that. They know how to handle the distractions, hype, and noise, and simply focus on the basics. The Packers are new at this. 

When investing, times like this should lead you to focus on your basics. Understand your asset allocation, particularly your risks. Understand how one security acts versus others (their correlation). Recently markets had been getting back to normal (pre 2008) correlations. The fear trade was subsiding. In the fall of 2008 all asset classes began moving in lock-step; equities, dollars, gold, fixed income, commodities, convertibles, real estate. Everything moved in the same direction...down. The reason was simple, they were all trading off of the same two factors; fear and liquidity (or lack thereof). Early this year we finally started to see this fear/liquidity trade fade. But now we have Northern Africa and the rest of the Arab nations stirring the pot. It will be interesting to watch correlations over the next couple of weeks. Take a deep breath, relax, and focus on understanding your portfolios risks.

Be careful out there, and keep the light's on,

Chris Wiles, CFA

412-260-7917

www.rockhavencapital.com

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This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management.  The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.