Egypt: Placebos, Protests and PM Breakouts

We are constantly being advised that the Egyptian military has the situation under control. As the situation develops it's becoming increasingly apparent that something is wrong with this picture. The military and media assure us the morganatic wedding between the generals and the masses will proceed as scheduled. As the old song goes, "It's time to wind up the masquerade; the piper must be paid." Is Iran sailing through the Suez sending a message of who may be trying to gain power during this chaos?

There's a great hunger in the land—the people have Facebook access and the faces they see increase their rage. They see generals, unnamed and anonymous, promising to give them bread and democracy. But they also see that the truth is otherwise. Unlike us, they're well aware the Egyptian military runs beach resorts, banks and bread factories. Its subsidiaries manufacture cars, TVs, furniture, washing machines and other myriad necessities. They even have the hubris to control the bottled-water industry. The brand is named "SAFI" after one of the general's daughters. From this gigantic conglomeration of businesses, the generals pay no taxes, use drafted workers and buy real estate on advantageous terms. They're not responsible to report anything to the Egyptian people or the legislature. The ouster of Mubarek was merely a placebo—an attempt to cover up the fact that the generals have been the power behind the government. Their names are unknown save the leader, Field Marshall Tantawi, who's often referred to as "Mubarek's poodle." They've established Marshall law, dissolved Parliament and cleared Tahrir Square with the carrot stick of eventually permitting democratic elections.

Still unanswered are the protestors with the release of thousands of political prisoners. Such brazen exercise of authority might be justifiably interpreted as a conflict of interest. However, the masses in Egypt and the rest of the Middle East are growing increasingly restive. The old games of propping up despots like Baptista and Trujillo in this age with the Internet accessible to men on the street and students in universities is growing increasingly thin. Revolutions have never played out according to script.

In Russia, the czar was overthrown only to be replaced by a small minority party, the Bolsheviks. In Germany it was the Nazis that replaced the Weimar Republic. The Iranian revolution gave us the Mullahs instead of the Shah. The recent elections in Lebanon gave us the terroristic Hezbollah. What will be the future role of a military that for the past 30 years has played a crucial behind-the-scenes role in preserving its own vast business interests? With Iran moving ships through the Suez, the situation remains in flux. This is a test of the Egyptian military. The cards have been dealt and Egypt allowing the Iranian boats through the Suez will show Israel the military's hand and whose side they're truly on.

Recently, newspapers said that the military has already "begun taking steps to protect the privileges of its gated economy, discouraging changes. . .that are crucial if Egypt is to emerge as a stable and prosperous country. Protecting its businesses from scrutiny and accountability is a red line that the military will draw—and that means there can be no meaningful civilian oversight."

Some other disturbing headlines in today's papers include:

• "Battle Lines Harden Across the Mideast as Rulers Dig in"
• "Dozens Reported Killed in Libyan Crackdown"
• "Yemen Protestors Face off for the 8th Day"
• "The Committee Formed to Protect Journalists Fights Attacks"
• "Egypt Disappearances Raise Concerns About the Military"

What does all this turmoil, restlessness and upheaval mean to us as investors? The message cannot be clearer—precious metals will assume a more salient role as time goes by. It's interesting to note that when tyrants depart, they make sure the gold they stole has preceded them. In Tunisia, the ousted leader Ben Ali made sure that he looted the government gold coffers before he left. In Egypt, Mubarek's son Gamal was reported to have carried off large amounts of gold. We don't have to be weathermen to determine which way the winds of change are blowing in the Middle East. Precious metals will remain a viable store of wealth and a quasi-currency, especially if these riots turn violent. Already there have been reports that protestors were fired upon in Bahrain.



Silver has broken out of a six-week consolidation into new highs and is currently showing incredible relative strength. This morning SLV made an ascending triple-top breakout on the point and figure chart at $31. I believe we may start seeing another major leg higher and acceleration of the trend in PMs. Physical demand for silver is increasing and could continue its rapid rise higher in its new high territory.

Gold is showing similar strength, as it broke the 50-day moving average to the upside. In January, gold and miners reached oversold levels not seen in over a year. Now many of the bears who sold out and expected a steeper correction will be returning pushing gold, silver and mining stocks into new high territory. This is the perfect storm for precious metal investors. Our buy signal on January 25th has proven a short-term turning point, and the break into new highs may look like one of the best buying opportunities in years. To see the article I wrote in the middle of the panic, click here. Investors who did not trust the two-year trendline, made a major mistake and sold out into the fear. Those times when fear reaches an extreme offer the best opportunities.

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Jeb Handwerger
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