Hosni and the Heartbreakers

February 7, 2011

Major market indices were mixed last week. The DJIA fell 0.41%, the S&P 500 decreased 0.55%, and the Nasdaq fell by 0.10%. Growth stocks outperformed value stocks. And the small cap index gained 0.29%. The 10-Treasury yield closed 10 points lower, closing at 3.33%.
The International Monetary Fund said late Monday that it expects the global economy to grow 4.4% in 2011. The previous thought was 4.2%, offered in October. Nice pickup.
It's hard to get too bearish right now. The U.S. and European markets are in good shape. The economy is moving forward at a dull but reasonable pace. Cheap money is everywhere. Inflation is low. And companies are putting cash towards mergers and stock buybacks. That's a pretty solid bid propping up the market.
As of late, the market has been undeniably positive in its momentum. Translation? One can likely expect a correction at some point soon. A pullback of 5-8% would not be shocking. Enough to take the chafe off the lake. Make it safe for skiing.
And last week, we may have gotten the catalyst.
Riots broke out across Egypt as citizens protested President Hosni Mubarak's oppressive 30-year rule, demanding that the 82-year old step down and hold immediate elections.
Egyptians have not taken to the streets because of harsh economic conditions. Many Egyptians have enough to eat and drink. Fuel for their cars. They're locking arms in the streets as a show of solidarity. They are demanding what they feel should be theirs. The right to choose their leadership. The right for their children and grandchildren to do the same.
And this is where things get tricky.
Hosni Mubarak has been a friend of the U.S. Analysts and members of the mediacracy have come out in support of those seeking freedom in Egypt, but have quickly hedged, noting that neither Mubarak's ejection from power nor the potential ascendency of the Muslim Brotherhood are good for American strategic interests.
How crass. Allow history to be our guide.
Carter supported the Shah in 1979. The Shah's government fell to a youthful revolt. Much like that in Egypt. We've been fighting the repercussions of having sided with the Shah ever since.
When Iran's Green Revolution occurred last year, we very gently blew the kindling of freedom, hoping it would spark and ignite. But, we did blow hard enough.
Nobody cares to see the Suez Canal fall into the hands of radicals. Nor should we wish to further erode U.S. goodwill in the middle east by ceding the high ground yet again. Because it seems politically expedient.
Can we lean towards liberty? Mubarak will gladly re-open his arms to us (and our $3 billion in annual aid) if he's given the chance.
Ten years ago we went into Afghanistan to oust the 9/11 perpetrators. Then, in a move still questioned by critics the world over, we went into Iraq-purporting to bring democracy where there had been only tyranny.
Now, in a land that has suffered 30 years under secret police, central control and government corruption, we have a chance to step up and deliver. Mubarak is 82. He is ill. His time has passed. No troop deployment. We need commit only words.
The longer we wait to support the Egyptian people, the worse we look. We must stand for democracy. Always. Even when it's not the most politically expedient option.
Why? Because in the long run, right is right. Sometimes the highway to hypocrisy may be the path of least resistance. But Democracy is a choice, not a party favor. And once it has been chosen? It becomes a right. Get behind it, or lose the moral high ground.
If Mr. Mubarak retains control over his family fiefdom and those 25-year olds who have spent days sleeping in Liberation Square waken to the reality that, for all of their efforts, nothing has changed, who can we blame? Who will they blame?
When pro-democracy activists reach out, we can only flirt so long. Soon the object of our affections will feel spurned. After that? They may never bat an eye our way again. And we have more than flirted here.
A year-and-a-half ago, President Obama spoke at a university in Cairo. The auditorium was packed with young people. Egypt's future leadership. Obama told them that the U.S. supports their democratic aspirations. Now, those words carry power. Time to deliver.
Egyptians fell out of love with Mubarak long ago. While he has occasionally been a friend of the west, he has been a tyrant at home.
Most likely, the revolts in Cairo and Alexandria will give way to a relatively peaceful transition. A new army-backed government which will likely continue the 40-year secular Egyptian state begun by Nasser and Sadat. Hopefully there will be fewer restrictions on personal liberty.
While much of the western mediacracy has envisioned a radical Islamic government (a la Iran) that might threaten the Suez Canal, that is unlikely. Historically, Egypt has acted more like Turkey. A secular Muslim country more focused on business and culture than on radical idealism.
In spite of that, the market is pulling back due to the mounting instability in Northern Africa. Moody's downgraded Egypt's bond rating to Ba2 from Ba1. Oil prices have been pushed higher. Yemen could be next. Things could worsen before they improve.
But remember this: this market has been looking to justify a 5-10 percent correction, and this could be the catalyst. However, so long as interest rates and inflation remain low, this market has a bid beneath it. We expect any pullback to be short lived.
Secretary of State Hillary Clinton has been alluding to the need for Mubarak to step aside. Let's do the right thing by the Egyptian youth. The same youths addressed by our president. Let's show that courtship can be more than a passing flirtation. That sometimes a committed, long-term relationship develops. That democracy-once ignited, will erupt.
If, however, we choose another course of action, let's not be surprised when broken hearts quickly blacken. Stay tuned...

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