Global Commodities Yield Turbulence and the Arab Spring

Last Sunday evening as I returned to my hotel room after attending the opening reception and dinner at American Business Media’s annual event in Austin, Texas, my cell phone rang and Mary Claire told me to turn on my television — President Obama would be announcing shortly that after almost 10 years since 9/11, Osama bin Laden, the mastermind behind a day that will live on infamously in history as the worst attack on American soil, had been discovered living in Pakistan and had been taken out by a team of U.S. Navy Seals. President Obama and his team of advisors were roundly congratulated from both sides of the aisle in Congress on their bold move and the success of the mission. A strong message was sent around the world that America will protect its interests and carry through with its stated commitments.

The next day, May 2nd, Rania Abouzeid reported from Beirut for TIME: “How the Arab Spring Made Bin Laden an Afterthought“: “There were no banners hailing Osama bin Laden in Egypt’s Tahrir Square; no photos of his deputy Ayman al-Zawahiri at anti-government protests in Tunisia, Libya or even Yemen, a key staging ground for Al-Qaeda in the Arabian Peninsula and bin Laden’s ancestral home…But these militant groups no longer define the Middle East. The Arab Spring is shaking up the region in a manner not seen since Mark Sykes and Francois Picot took to a map with their markets in 1916 and divided up the moribund Ottoman Empire into spheres of interest between Britain and France.”

It looks like the Arab Spring will continue into summer with the developing stalemate in Libya and the ongoing crackdown in Syria. The world’s commodity markets will continue to be driven up and down by shifting sentiments and speculation on what the future may yield. Alan Abelson wrote in his famed Barron’s column, “How thoughtless of Osama Bin Laden! Yes, we know he was a holy terror and all that, but you’d expect a sliver of manners and consideration for others would have rubbed off on him after all those years of hobnobbing with kings and princes. But, no, he had to get himself shot dead in the head and never mind it might wreak havoc on the oil market….Why, the hubbub was so great that it did something even such eminences as Ben Bernanke and Tim Geithner have been conspicuously powerless to achieve — it miraculously revived the supine dollar, which had suffered weeks on end of dizzying vertigo…The unexpected rise of the greenback in response to the dispatch of the odious bin Laden, helped set off a pinch of pandemonium throughout the commodities realm, reaching into the heretofore sacrosanct precincts of gold and silver. Those precious metals had been on a tear spurred in no small measure by gathering fears of inflation fed by the shrinking value of the dollar. When the buck bucked up, such fears diminished enough to trigger a selling stampede.” (Up and Down Wall Street: “Hi-Yo Silver,” Barron’s, May 7, 2011)

On Saturday the Wall Street Journal summarized the week: “Despite Friday’s gains, the Dow Jones Industrial Average fell 1.3% for the week. Oil prices fell 15%, closing at $97.18 a barrel. Silver closed Friday at $35.28 an ounce, a fall of 27% for the week — the metal’s largest percent decline in more than 30 years. Gold fell 4.2%, and copper lost 4.9%.” (”Silver Crashes, Stocks Slide,” WSJ, May 8, 2011)

Against this background Der Spiegel’s website reported that Greece might default and was considering quitting the Euro Zone. This was denied by all, but U.S. treasuries continued to rise. (Barron’s May 7, 2011)

Our own aiCIO reported on May 4th in “PIMCO’s Gross Urges Investors to ‘Revolt’ Against US Government, Buy EM Debt“: In face of rising inflation, Bill Gross, founder and co-chief investment officer of Pacific Investment Management Corporation (PIMCO), is urging investors to embrace local-currency emerging market debt. Gross also counseled in his May Letter, The Caine Mutiny (Part 2): “If AAA quality is your requirement, then Canadian or Australian bonds may also fit your horizon.”

I am looking forward to seeing how the global commodity, currency and bond markets behave this week!