Why Egypt Matters To You & Your Money
The uprising in Egypt is big news around the world these days, and while most Americans dismiss the news as just another event over there, the reality is that it is an important event and it represents something bigger.
First, let’s discuss the unrest over there. American media is quickly to describe the uprising as a political event where an oppressed people are finally attempting to throw off the chains of an oppressive government and usher in American style democracy. This is a very myopic point of view. While I don’t doubt some element of political unrest, it is definitely more economic than political. These people are content with whatever form of government as long as the economy is fine and they have food on the table.
The main catalyst for the current unrest is the combination of unemployment and higher food prices. Start taking away someone’s bread, and all of a sudden they get very political.
Interestingly, I read that in Kuwait, every citizen there is paid $3,500 a year and given free food to essentially accept to the current regime. While that sounds odd and outrageous, I would ask you to consider how different is it in America really? How many people are on food stamps here? 40-something million. How many people that don’t pay taxes get money from the government in the form of a credit or rebate? How different are we?
Ok, back to the main point… why does Egypt matter?
The ultimate reason why Egypt matters is that this part of the world is very important with regards to oil. And, if you live in the modern world, you undoubtedly use a lot of it. Lots of your money goes toward oil and indirectly most of the products you buy have a embedded oil cost either based on production or transportation.
If oil goes significantly higher, your standard of living absolutely goes lower.
The main question is whether or not Egypt is an isolated incident or if this is something we will see more of in that part of the world. There is some news that some unrest of Saudi Arabia is sort of materializing. This would be a nightmare for oil prices.
The worst thing for Americans would be if America’s influence in the region disintegrates. There are indeed regimes in the middle east that are friendly to American interests and this is crucial for cheap oil. If unrest spreads and pro-America regimes are toppled, cheap oil is no more. This doesn’t even factor in the monetary and dollar issues that will force oil prices to rise.
The bottom line is that Egypt is just one more reason that you have to have some exposure to oil in your investment mix. Long term, oil will go up. It will impact your wallet, so make sure you offset it somewhat by having oil exposure in your portfolio.