Egyptian Vice President Talks with Opposition; Military Recognizes "Legitimacy of the People�s Demands"; Can the U.S. Deal with ElBaradei?

With each passing day, Egyptian president Hosni Mubarak's control is rapidly dissipating. The crisis is now in day seven. The military, called in to keep peace, has sided with the people. Some tanks even display anti-government messages.

It what seems to be a last ditch effort to buy time, Egypt's newly appointed Vice President is in talks with the opposition. That is a sign Mubarak may be in his final days before some agreement to replace him is hashed out.

The New York Times reports Mubarak�s Grip on Power Is Shaken.

The government of Egypt�s authoritarian president, Hosni Mubarak, shook Monday night, as the Egyptian Army declared that it would not use force against protesters demanding his ouster and, in an apparent response, Mr. Mubarak�s most trusted adviser offered to talk with the opposition.

Hundreds of thousands have turned out into the streets over the last six days, and organizers called on millions of Egyptians to protest on Tuesday.

Within hours on Monday, the political landscape of the country shifted as decisively as it had at any moment in Mr. Mubarak�s three decades in power. The military seemed to aggressively assert itself as an arbiter between two irreconcilable forces: a popular uprising demanding Mr. Mubarak�s fall and his tenacious refusal to relinquish power.

How far Mr. Mubarak is offering to bend in negotiations remains to be seen, and given the potential ambiguities of both statements it is too soon to write off the survival of his government.

But the six-day-old uprising here entered a new stage about 9 p.m. when a uniformed military spokesman declared on state television that �the armed forces will not resort to use of force against our great people.� Addressing the throngs who took to the streets, he declared that the military understood �the legitimacy of your demands� and �affirms that freedom of expression through peaceful means is guaranteed to everybody.�

A roar of celebration rose up immediately from the crowd of thousands of protesters still lingering in Tahrir Square, where a television displayed the news. Opposition leaders argued that the phrase �the legitimacy of your demands� could only refer to the protests� central request � Mr. Mubarak�s departure to make way for free elections.

About an hour later, Omar Suleiman, Mr. Mubarak�s right-hand man and newly named vice president, delivered another address, lasting just two minutes.

�I was assigned by the president today to contact all the political forces to start a dialogue about all the raised issues concerning constitutional and legislative reform,� he said, �and to find a way to clearly identify the proposed amendments and specific timings for implementing them.�

Mr. Mubarak�s previously unquestioned authority had already eroded deeply over the preceding three days. On Friday, hundreds of thousands of unarmed civilian protesters routed his government�s heavily armed security police in a day of street battles, burning his ruling party�s headquarters to the ground as the police fled the capital. On Saturday, Mr. Mubarak deployed the military in their place, only to find the rank-and-file soldiers fraternizing with the protesters and revolutionary slogans being scrawled on their tanks.

And on Sunday, leaders of various opposition groups met to select Mohamed ElBaradei, the Nobel Prize-winning former director of the International Atomic Energy Agency, to negotiate for them in anticipation of talks with Mr. Mubarak about forming a transitional unity government � an idea Mr. Mubarak�s surrogate embraced Monday.

Egypt Offers Opposition Talks in Bid to End Protests

In a similar story, Bloomberg reports Egypt Offers Opposition Talks in Bid to End Protests

Newly appointed Vice President Omar Suleiman offered talks with opposition groups in a bid to end Egypt�s unrest as protesters urged a million people to take to the streets today and force President Hosni Mubarak from office.

The announcement by Suleiman, one of Mubarak�s closest advisers, that he would open talks was made on Egyptian state television. Thousands of protesters erupted in cheers in Tahrir Square, the downtown plaza which honors the 1952 revolution in which the Egyptian military overthrew a constitutional monarchy and proclaimed a republic.

State TV later reported that the talks between the Mubarak regime and some of its opponents had begun, but didn�t identify participants. Opposition groups also called for all Egyptians to take part in a nationwide strike.

�If I hear the news correctly this morning, the military are in agreement with the people,� Ong Eng Tong, a Singapore- based consultant with Hamburg-based oil trader Mabanaft Gmbh., said on Bloomberg television. �And this will be a repetition of what happened in the Philippines I think about 20 years ago during Aquino�s time where everything will be settled once the military and the people get together.�

The anti-Mubarak movement, backed by former United Nations nuclear official Mohamed ElBaradei and the Muslim Brotherhood, is aiming to force the resignation of the 82-year-old Mubarak after 30 years in power, said Mahmoud El-Said, one of the organizers.

The Egyptian opposition has set up a committee, including ElBaradei, 68, and the Brotherhood, that will convey the movement�s demands to the government, said Ayman Nour, who was a distant second to Mubarak in Egypt�s first multi-candidate election in 2005.

Mad Scramble to Size Up ElBaradei

Please consider U.S. Scrambles to Size Up ElBaradei

When President Obama unexpectedly won the Nobel Peace Prize in 2009, one predecessor was quick to applaud his selection for the award.

�I could not have thought of any other person that is more deserving of the Nobel Peace Prize than Barack Obama,� Mohamed ElBaradei, then the director general of the International Atomic Energy Agency, said in a videotaped statement. He went on to praise Mr. Obama�s commitment �to restore moral decency� to the lives of people around the world.

But on Sunday, Mr. ElBaradei, now a prominent face of the opposition on the streets of Cairo, was sounding a different tune. �The American government cannot ask the Egyptian people to believe that a dictator who has been in power for 30 years will be the one to implement democracy,� Mr. ElBaradei told CBS�s �Face the Nation.� He called the United States� refusal to openly abandon President Hosni Mubarak of Egypt �a farce.�

Mr. ElBaradei, 68, had a fractious relationship with the Bush administration, one so hostile that Bush officials tried to get him removed from his post at the atomic watchdog agency. But as Egypt�s powerful Muslim Brotherhood and the secular opposition on the streets of Cairo have increasingly coalesced around Mr. ElBaradei to negotiate on their behalf, the Obama administration is scrambling to figure out whether he is someone with whom the United States can deal.

�Ironically, the fact that ElBaradei crossed swords with the Bush administration on Iraq and Iran helps him in Egypt, and God forbid we should do anything to make it seem like we like him,� said Philip D. Zelikow, former counselor at the State Department during the Bush years. For all of his tangles with the Bush administration, Mr. ElBaradei, an international bureaucrat well known in diplomatic circles, is someone whom the United States can work with, Mr. Zelikow said.

However, he allowed, �Some people in the administration had a jaundiced view of his work.�

Among them was John Bolton, the former Bush administration United States ambassador to the United Nations, who routinely clashed with Mr. ElBaradei on Iran. �He is a political dilettante who is excessively pro-Iran,� he complained. Even some of Mr. ElBaradei�s staff members chafed a bit when he softened the edges of I.A.E.A. reports, especially on Iran. They believed he was doing everything he could to avoid giving the Bush administration, or Israel, a reason to launch a military attack on Iran�s nuclear facilities.

Dealing with Reality

For starters, I applaud ElBaradei's willingness to stand up to the Bush administration's Mideast war mongering efforts. President Bush blew trillions of dollars in a senseless war.

However, the current situation is different. ElBaradei needs to stand up to Obama to gain credibility of the Muslim Brotherhood. Therefore, ElBaradei 's criticism of Obama is essentially meaningless. Moreover, I see nothing wrong with his statements.

I find it humorous that people are asking "Can the U.S. deal with ElBaradei?"

The reality is the U.S. is likely going to have to deal with ElBaradei before that next Egyptian government is decided, whether we like it or not. Then the U.S. is going to have to deal with the next ruler of Egypt whether we like that person or not.

Let's hope Egypt chooses wisely. Then let's hope the U.S. deals with the outcome wisely. Unfortunately, our track record on the latter is abysmal.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Federal Judge in Florida Voids Entire Healthcare Law; Obama's Concern "Bragging Rights"

In a case destined to go to the Supreme Court, the Insurance Journal reports Federal Judge in Florida Rules Federal Healthcare Law Must Be Voided

U.S. District Judge Roger Vinson, appointed to the bench by President Ronald Reagan in 1983, ruled that the reform law�s so-called �individual mandate� went too far in requiring that Americans start buying health insurance in 2014 or pay a penalty.

�Because the individual mandate is unconstitutional and not severable, the entire act must be declared void. This has been a difficult decision to reach, and I am aware that it will have indeterminable implications,� Vinson wrote.

He was referring to a key provision in the Patient Protection and Affordable Care Act and sided with governors and attorneys general from 26 U.S. states, almost all of whom are Republicans, in declaring it unconstitutional. The issue will likely end up at the U.S. Supreme Court.

Two other federal judges have rejected challenges to the individual mandate.

But a federal district judge in Richmond, Virginia, last month struck down that central provision of the law in a case in that state, saying it invited an �unbridled exercise of federal police powers.�

The provision is key to the law�s mission of covering more than 30 million uninsured. Officials argue it is only by requiring healthy people to purchase policies that they can help pay for reforms, including a mandate that individuals with pre-existing medical conditions cannot be refused coverage.

Unbridled Exercise of Federal Police Powers

Please consider the Wall Street Journal article Court Strikes at Health Law

U.S. District Judge Henry E. Hudson said the law's requirement that most Americans carry insurance or pay a penalty "exceeds the constitutional boundaries of congressional power."

The 42-page ruling doesn't mean states or the federal government must stop implementing the law. But it is expected to give ammunition to a broad Republican assault against the overhaul, which includes efforts in Congress to chip away at it.

Requiring Americans to buy insurance "would invite unbridled exercise of federal police powers," wrote Judge Hudson, a George W. Bush appointee in the Eastern District of Virginia. "At its core, this dispute is not simply about regulating the business of insurance�or crafting a scheme of universal health insurance coverage�it's about an individual's right to choose to participate."

Administration officials portrayed the ruling as an attack on one of the law's most popular provisions, the ban on insurers denying coverage to people with pre-existing health conditions. That piece of the law cannot work unless coupled with a requirement that nearly all Americans carry insurance, they said.

Who Cares if it's Constitutional as Long as it's Popular?

Obama does not care about constitutionality. He is concerned about bragging rights (He got healthcare passed when no other president could). He is also concerned about popularity.

Ironically, most polls show US citizens are not in favor of the bill that passed.

I happen to agree with the Virginia and Florida rulings regarding constitutionality of that provision. Moreover, given the poor way in which the bill was written, I also agree with the Florida ruling �Because the individual mandate is unconstitutional and not severable, the entire act must be declared void."

Many will point to auto insurance as proof of legality. However, not everyone has to buy auto insurance (only those drive cars do). Moreover, the point of auto insurance is to protect others from your damage, not yourself from your damage.

Nonetheless, I do not know how the Supreme Court will rule. I suspect they will uphold the law. They would be wise to not do so. The best thing to do with the monstrous healthcare bill is start over.

Addendum:

"LastBoyScout" says ...

Good points! Another, more important point is that auto insurance is required by individual states, not the federal government.

The 10th Amendment - Powers of States and people.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Japan Learns to Live with Deflation (If Only Analysts Could Figure Out How)

In Japan, wages are lower, but so are prices for goods and services, even food. Japan's companies are devising ways to profit from deflation, says Bloomberg writer Aki Ito in Japan Learns to Live with Deflation.

Ben Bernanke has been lecturing on deflation's perils since he joined the Federal Reserve in 2002 and has often held up Japan as Exhibit A.

There's something curious about the way the deflation syndrome has played out in Japan, though. The Japanese don't feel that threatened anymore. "Everyone knew deflation was bad for jobs and bad for the economy, but gradually households and companies just got used to it," says Martin Schulz, a senior economist at Tokyo's Fujitsu Research Institute.

Deflation�the steady drop in prices of goods, wages, and services�has many ill effects. Households are stuck paying off mortgages, car loans, and other debt even as their take-home pay has declined. Also, as housing values fall, consumers have smaller nest eggs for retirement. Companies, meanwhile, are unable to raise prices, which puts pressure on profits.

Yet the Japanese have discovered the benefits of deflation as well. Monthly pay dropped to an average 315,294 yen ($3,800) in 2009, the lowest level since the government began tracking wage data in 1990. "It's not like I'm promised any pay raises," says Momoko Noguchi. The 24-year-old Tokyo resident gets by on two part-time jobs by shopping for everything from nail polish to dinner plates at her local 100-yen outlet (the Japanese equivalent of an American dollar store), and she pays 400 yen or less for lunch. "I hope prices keep falling." Four out of five Japanese say higher costs would be "unfavorable," according to a central bank survey.

To help reverse a seven-year decline in same-store sales, McDonald's Holdings Japan, a unit of McDonald's (MCD), introduced a 100-yen menu in 2005. The chain's 100-yen hamburger sold for 210 yen in 1990. "We wanted our customers to know that we've changed," says Kazuyuki Hagiwara, Tokyo-based senior marketing manager at the company. Since the debut of the lower-priced menu, same-store sales have climbed every year. McDonald's Japan shares have returned 17 percent in the past three years.

Price cutting by companies has helped Japanese consumers adjust to deflation. The average household owns 1.4 cars and 2.4 color TVs, about a quarter more than in 1990, a Cabinet Office survey shows. Deflation has helped home buyers, too, by forcing prices down from their peaks in 1990: According to calculations based on yearly Land Ministry data, Japan's residential land prices have dropped by an average of 2.9 percent a year over the past two decades.

So is deflation a blessing in disguise? Not to analysts such as Richard Jerram, head of Asian economics at Macquarie Securities (MGU). He points out that as businesses cut prices to compete, it becomes harder to borrow and invest. "It's extremely corrosive," he says. Deflation, adds Jerram, will steadily sap Japan's nominal growth and deprive the government of tax revenue. Eventually, Japan may no longer be able to finance its borrowing. The country will then either have to default on debt that's about twice the size of the economy or devalue its currency to reduce the real value of liabilities. "That's the unavoidable endgame," says Jerram, who has analyzed the Japanese economy since 1987. "As long as it's in the future, everybody can pretend it's someone else's problem."

The bottom line: Although deflation ultimately poses a serious threat to Japan, ordinary consumers are benefiting from lower prices.

Erroneous Conclusions

It is painful to watch someone gather the facts then jump to the wrong conclusions.

Even worse than Ito's fallacious "bottom line" conclusion is the thought process from Richard Jerram at Macquarie Securities (MGU), supportive of that conclusion.

It would help if Jerram thought for 15 seconds (about the right things) before yapping nonsense. Japan is in debt to the tune of 200% of GDP because it squandered massive Japanese savings over the course of decades, in a foolish and futile fight against deflation.

Japan would not be at risk of default and would instead be sitting on a mountain of cash instead of a mountain of debt had it not squandered money building bridges to nowhere in a battle that should not have been fought, and clearly was not winnable in the first place.

Moreover, if prices are falling, they are falling for the government as well (at least they should be). Therein lay the problem. Governments want ever increasing amounts of revenue to support huge untenable, and needlessly growing bureaucracies, regardless of what prices and wages are doing.

That is what saps a country's strength. Yet, Jerram comes to the amazing conclusion that inability to collect higher taxes saps a country's strength.

The last time I checked, Toyota, Subaru, Nissan, Mitsubishi, Mazda, and Honda were still in business and doing fine. So are Sony, Panasonic, Kyocera, Nippon, etc.

Since Ito never explained his bottom line "Although deflation ultimately poses a serious threat to Japan, ordinary consumers are benefiting from lower prices" I suspect it came from listening to Keynesian clowns like Jerram who has studied this problem for 24 years and failed to learn a damn thing.

The fact of the matter is there is nothing corrosive about deflation per se. Indeed falling prices and rising lifestyles as a result of increasing productivity should be expected.

However, there is something corrosive about going deep into debt that cannot be paid back. That is the situation Japan finds itself in today (primarily because the government listened to Keynesian and Monetarist jackasses who insisted that deflation was something that needed to be fought).

Of course the US (led by Bernanke), Europe (with its sovereign debt crisis), and Australia, Canada, and China (with their housing bubbles) are in the same sorry condition.

What cannot be paid back won't. That is the message of Japan. That is the message of Greece, and Ireland. That is the message in the US. That is the message in Australia, Canada, and China.

With so many messages and with savers wanting lower prices (please see Hello Ben Bernanke, Meet "Stephanie"), how the hell can people like Ito and Jerram get it 180 degrees wrong?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Hello Ben Bernanke, Meet "Stephanie"

Here is an email from "Stephanie". She heard me talk about the economy on Coast-to-Coast AM radio with George Noory.

Stephanie writes ....

Hello Mish,

I don't know if you give advice, but I heard you on Coast-To-Coast and you seem to know what you are talking about. I am 65 years old, get $938 from Social Security, and this is all I live on every month.

I have a CD that is about $16,000 now and is providing $75 a month. In about a year that will stop because the interest has gone down so much. If you were me, what would you invest in?

I lost $2,000 in the stock market a few years ago and the way it is now it is rather scary. I don't know what else to even consider and when I ask my banker he seems to be at a loss too.

Any help you could offer would be a blessing. Thank you for your consideration and kindness.

Stephanie - Somewhere, USA

Clobbered by the Fed

Hi Stephanie

You and many others are getting clobbered by the policies of the Fed. Not only did taxpayers bail out the banks at taxpayer expense, Bernanke and the Fed continues to do so.

By holding interest rates low, the Fed is hurting everyone on fixed income with savings in the bank or CDs. You get almost no interest on your savings, and that is robbing you and everyone else like you.

Bernanke is hoping people like you gamble and invest in risky assets. Indeed, he is doing everything he can to force people into taking more risk.

Don't do it. It is not a prudent thing to do.

The stock market is extremely overvalued here and could easily decline hard. Indeed, I think it will at some point.

Emergency Fund in Cash

My straight forward advice to everyone is to have an emergency fund of at least a year's worth of living expenses in the bank before they invest in stocks, bonds, gold or anything other than short-term CDs or treasuries.

It is obvious that Bernanke's concern is doing what is best for banks. He shows no concern about the damage he is causing elsewhere.

Bernanke is a Coward Hiding Behind Mathematical Formulas

I wish I could get Bernanke in a room with you and everyone in your position, and take questions from you.

Bernanke will not do that because he is a coward. He hides behind mathematical formulas, the same ones I might point out that told him housing was not in a bubble, there was no risk of recession, and that the unemployment rate would not top 8%.

He did not know what he was doing then, and he certainly does not understand the risks now.

Moreover, his "Quantitative Easing" policies have helped fuel speculation in commodities, especially food and gasoline. That speculation is contributing not only to rising prices in the US, but even more so globally.

To be fair, there are some severe weather problems in other parts of the world that affect growing conditions and thus food prices. In addition, there is massive credit expansion in China and India that puts upward pressure on food and energy.

However, there is also little doubt that Bernanke has fueled commodity speculation with his low interest rate policies and that too has pushed prices higher.

Believe it or not, Bernanke is worried that prices might fall. I suspect you would love to see prices fall, and so would everyone else in your situation.

Unfortunately, Bernanke intends to keep interest rates low until prices go up to his liking, and then when prices do start rising, interest you earn on your CD will not keep up with prices.

Bear in mind, that the Fed excludes food and energy from the prices they monitor. They desperately want housing prices to rise. However, the Fed can make money available, but it cannot control where that money goes.

Serial Bubble Blowing

The Fed's loose money policies fueled a housing bubble last time, now money is pouring into commodities, junk bonds, and leveraged buyouts (once again). This is bound to end badly once again.

Meanwhile, the unemployment rates is still 9.4% officially, and much higher unofficially.

Fed's Policy Is Theft

Stephanie, it's a little known fact that inflation benefits those with first access to money, such as the banks, the wealthy (via rising asset prices), and the government (think rising sales taxes and property taxes when prices go up).

Everyone else gets screwed. You are right in the middle of the pack of those most hurt by the serial bubble blowing policies of the Fed.

Viewed this way, Bernanke's policies are nothing but theft, robbing the poor, for the benefit of banks and the wealthy.

This is why I support Congressman Ron Paul's effort to end the Fed.

No Good Solutions for Those on Fixed Income

Your dilemma is 1-year treasuries yield a mere .23%.

Unfortunately, I have no good investment solutions for you, because there are none. You are not suited for stock market risks, and if there is any chance you will need to use your savings any time soon, you cannot afford to risk being in long-term CDs.

Arguably the best thing for you to do is find a bank that has 1% or higher rates on savings accounts.

Avoid Fees

There are some other common-sense things you can do. For example, it is critical for you to avoid all fees. If you have fees on your checking account now, find a place that does not have them. Bankrate can help on CD rates, savings rates, and checking account rates.

Invest in a Freezer

I do not know whether you have a home or an apartment, but if you have room, get a suitably-sized freezer and only buy meat on sale. The price of meat on sale is frequently 50% or less of meat not on sale.

Wrapped properly, many food items will last a year or longer. Use freezer paper for roasts and date every package. Packaged bacon also freezes well. I only buy bacon when it is 2 for 1. If you are nimble, learn to cut your own chicken. If not, buy the cuts you like on sale and freeze those.

Buy ground beef on sale and make patties the size you like and freeze those. Pork chops freeze well too. I use good quality plastic wrap doubled up. Costco has excellent quality wrap in a large spool that will last a very long time. Get all the air pockets out or you will get freezer burn.

Vacuum packaged cheese also stores well. It needs to be refrigerated and can be frozen, but does not have to be frozen.

Buy storable commodities such as spaghetti, pinto beans, brown rice, etc. on sale. Try not to buy anything unless it is on sale. Then buy large quantities.

Complain to the Fed

If I had an email or Fax number for Ben Bernanke or the Fed I would post it. Unfortunately all I have is a link to a contact form. You can use that form to Contact Ben Bernanke and give him a piece of your mind.

Change the button on the form to "Comment for Board Members" and blast away. It will not do any good because the Fed does not care about the plight of those on fixed income, but it might make you feel better.

I hope some of these ideas help. Best wishes.

Good luck to you Stephanie.

For everyone else ... This does not change my stance on deflation. I think round II of a major credit crunch is likely. All of the structural problems remain and the global economy is at least as unbalanced as before, possibly more so. On a credit basis (which is what matters to those not retired and struggling on fixed income), I expect the US to dip in and out of deflation over a number of years as did Japan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ElBaradei Unifies Opposition, Criticizes Obama; Business Grinds to a Halt; Ports Shut Down, Food Prices Soar; Shortages of Food, Water, Fuel

Business in Egypt has ground to a halt. Food and consumer goods stack up in ports. Gas stations have not had deliveries for days and supplies dwindle. Simple economic theory suggests prices will soar and they have.

After an initial lukewarm reception when he first returned to Egypt, Nobel laureate and opposition leader Mohamed ElBaradei has picked up some much-needed support from the Muslim Brotherhood. That support creates a somewhat united secular-religious opposition to Egyptian President Hosni Mubarak.

An emboldened ElBaradei is now openly critical of the Obama administration. "It�s better for President Obama not to appear that he is the last one to say to President Mubarak, it�s time for you to go," Dr. ElBaradei said.

ElBaradei Begins to Unify Opposition

The New York Times reports Opposition Rallies to ElBaradei as Military Reinforces in Cairo

Egypt�s powerful Muslim Brotherhood and the secular opposition banded together Sunday around a prominent government critic to negotiate for forces seeking the fall of President Hosni Mubarak, as the army struggled to hold a capital seized by fears of chaos and buoyed by euphoria that three decades of Mr. Mubarak�s rule may be coming to an end.

The announcement that the critic, Mohamed ElBaradei, would represent a loosely unified opposition reconfigured the struggle between Mr. Mubarak�s government and a six-day-old uprising bent on driving him and his party from power.

�Today we are proud of Egyptians,� Dr. ElBaradei told throngs who surged toward him in a square festooned with banners calling for Mr. Mubarak�s fall. �We have restored our rights, restored our freedom, and what we have begun cannot be reversed.�

Dr. ElBaradei declared it a �new era,� and as night fell there were few in Egypt who seemed to disagree.

�It�s better for President Obama not to appear that he is the last one to say to President Mubarak, it�s time for you to go,� Dr. ElBaradei said.

Ports Shut Down, Food Prices Soar, Business Grinds to a Halt

The internet is shut down, so are cell phones, and so are ports. Goods stack up at docks, and supplies of fuel are at critical levels. After six days of riots, the Political Crisis Now Has Serious Economic Repercussions.

For four days now, containers arriving on ships have been stacking up at Egypt�s largest port, shipping company employees and truck drivers here said. With distribution networks barely functioning and the Internet down since Thursday night, much of business in Egypt has nearly ground to a halt.

�A big part of the production system is government-run, and this is frozen, including many of the bakeries making the subsidized bread,� said Hoda Youssef, an economist at the Arab Forum for Alternatives, an independent think tank and a lecturer at Cairo University. �Here in the short term � today, tomorrow, the coming few days � we might have a serious problem with shortages of food, water and fuel,� Ms. Youssef said.

�We did not get any new gas for the last two days,� said Mustafa Ahmad Hamadi, the owner of an Alexandria Mobil station, adding that he usually received about 2,600 gallons a day and now has only about 1,300 gallons left. He said that he had owned the station for 12 years, but has �never seen a situation like this before.�

�When I called the company, they told me there is no more distribution at this point and they don�t know when they can deliver again,� he said, as cars lined up for his remaining fuel and arguments broke out among customers despite employees� efforts to keep them in line.

A taxi driver with two women waiting in the back seat said he had been to 12 gas stations since Saturday, and this was the only one with gas. �I am really worried,� said the driver, Muhammad Youssri Said, 29. �This car is the income for me and my family. No taxi, no money, no food.�

Potential Runs on Banks

Banks are now shut down as is the stock market. However, Egypt�s Banks Risk Deposit Run when they do open.

Egypt�s banks may risk a surge in customer withdrawals when they open for business, placing them among companies worst hit by the nationwide uprising against President Hosni Mubarak.

�A run on the banks would be the biggest concern, which is possible in the current situation,� Robert McKinnon, chief investment officer at ASAS Capital in Dubai, said in a telephone interview. Authorities are likely to keep the financial system closed to avert the risk, he said.

Egypt�s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead.

Asked about the risk of a bank run, Mohamed Barakat, chairman of state-run Banque Misr and head of the country�s banking association, said in a telephone interview that Egyptian lenders are �very liquid,� with average loan-to-deposit ratios of 53 percent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Party Time in Davos

Egypt is flying apart, China and India are both overheating, and there has been no financial reform that will accomplish anything; nonetheless, it's party time in Davos.

One analyst with not enough clearance to party had a different message, so did Bloomberg columnist Simon Johnson. Otherwise it was party on dudes.

Please consider Lonely Analyst Warns of 2015 Bank Crisis Amid �Upbeat� Davos

As politicians, executives and financiers networked at parties and panels last week in Davos, Switzerland, Barrie Wilkinson was in a nearby hotel, warning that a 2015 financial catastrophe may be looming.

�The fundamentals haven�t been addressed at all,� Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. �The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they�re actually bigger now than they were then.�

In the caste system of the World Economic Forum�s annual event in the Swiss ski resort, Wilkinson was at a bottom rung, with an identification badge that denied him access to most sessions and soirees. His message clashed with the optimistic tone of many at the center of the meeting, who were eager to emphasize the progress made after two years of hand-wringing in the wake of the 2008 financial crisis.

�The systemic reforms that have been accomplished are significant,� Canadian Finance Minister Jim Flaherty said as he left a private meeting with finance company chief executive officers on Jan. 29. �We need to communicate better that financial institutions globally are operating on a very different basis today, that they are operating with higher capital and are better regulated.�

�An Avoidable History�

Wilkinson�s report, titled �The Financial Crisis of 2015: An Avoidable History,� isn�t so sanguine. The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system.

The report urges bank executives and shareholders to accept that returns of the past are unsustainable and that they need to do a better job of monitoring risks, especially in areas that produce unusually high profits.

�Banks need to be less leveraged,� said Wilkinson, who has an engineering degree from the University of Cambridge and has worked at Oliver Wyman since 1993, according to his LinkedIn page. �The true test for me of whether they�ve deleveraged is if the industrywide ROEs come down. If they don�t, I�m very suspicious that there are hidden risks in the system.�

Bloomberg Columnist Terrified

�I came into this dinner somewhat pessimistic and worried about the assignment we are here to discuss,� Simon Johnson, a professor at the Massachusetts Institute of Technology�s Sloan School of Management and a Bloomberg News columnist, said halfway through the evening. �I am now terrified. There is an incipient sovereign crisis here mixed in with the bank crisis.�

It's Party Time

So much for pessimism, let's consider some party goers.

Financiers at Davos this year weren�t talking much about future returns on equity or potential bubbles. Instead they were holding parties and meeting clients. JPMorgan Chase & Co. CEO Jamie Dimon, 54, hosted guests including Bank of Canada Governor Mark Carney and Dell Inc. founder Michael Dell, 45, at a reception one night. He was out late the next night with hedge- fund manager Louis Bacon, 54, and other guests at a party hosted by Google Inc.

�In Davos, there�s a lot of optimism here, and I�m quite surprised by it, especially from corporate CEOs,� said Tarun Jotwani, CEO of Europe, the Middle East and Africa and global head of fixed income at Nomura. �It is against a backdrop of potentially the biggest macroeconomic public-finance mismatches that I�ve ever seen in my career.�

U.S. Treasury Secretary Timothy F. Geithner, Bundesbank President Axel Weber and Spain�s finance minister, Elena Salgado, also spoke to a private gathering of some of the world�s top investors, including hedge-fund and private equity fund managers, according to two people who attended the meeting. The officials sought to assure the money managers that their policies would lead to growth and prevent a crisis in Europe.

�There was a very positive mood about what had been done so far,� said Howard Davies, a board member of New York- based Morgan Stanley and London-based insurance company Prudential Plc.

Put me in the party pooper column with Barrie Wilkinson and Simon Johnson.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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U.S. to Evacuate Americans From Egypt

Many US citizens have been trapped in Egypt hoping to get to any other country for connecting flights. Unfortunately, flights out of Egypt have ground to a halt. In response, the New York Times reports U.S. to Evacuate Americans

The Egyptian military reinforced parts of the capital on Sunday with tanks, jets and helicopters as tens of thousands of protesters flooded central Cairo for the sixth day, defying yet again government orders of a nationwide curfew.

In a stunning collapse of authority, most police have withdrawn from major cities, and soldiers fired shots into the air in an effort to control the crowds, seized by growing fears of lawlessness and buoyed by euphoria that three decades of President Hosni Mubarak�s rule may be coming to an end.

Thousands of inmates poured out of four prisons and the United States said it was organizing flights to evacuate its citizens Sunday.

The American Embassy, which urged all Americans in Egypt to �consider leaving as soon as they can safely do so,� underlined a deep sense of pessimism among Egypt�s allies over Mr. Mubarak�s fate, as the uprising against his rule entered a sixth day.

Several hours after nightfall, Mohamed ElBaradei, the Egyptian opposition figure and Nobel prize winner, arrived the square. �What we have begun, we cannot go back,� he said, news agencies reported.

�It is loud and clear from everybody in Egypt that Mubarak has to leave today,� he said in an interview on CNN. He said Mr. Mubarak�s departure should be followed by a transition to a national unity government and �all the measures set in place for a free and fair election.�

Note: The NYT headline of "U.S. to Evacuate Americans From Egypt" does not match the story. It appears, the story will follow. Here is a link to the latest New York Times Headlines.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Oil ETF Call Trades Soar to Record, Crude Futures Back Near Highs; What Will Next Week Bring?

In light of firebombings, riots, and anarchy in Egypt, coupled with social unrest in Yemen, Jordan, Algeria, and Saudi Arabia, call options of those betting on higher oil prices soared to seven times normal activity on Friday.

This weekend we saw the closing of Egyptian banks and the announced closing of Egyptian stock markets on Monday. However, it is hard to know what will happen next week.

To help understanding the possibilities, please consider this analysis of Friday's crude action.

Bloomberg reports Oil ETF Call Trades Soar to Record Amid Egypt Unrest

Trading of bullish options on an exchange-traded fund tracking crude futures soared to a record as oil surged the most since September 2009 after unrest in Egypt raised concern that protests would spread to major oil- producing parts of the Middle East.

Almost 242,000 calls to buy the U.S. Oil Fund changed hands today, seven times the four-week average and almost five times the number of puts to sell. The most-traded contracts were the February $38 calls, which rose sixfold to 48 cents. The ETF gained 4.6 percent to $37.58.

�Bullish players are binging on call options across several expiries,� Caitlin Duffy, an equity-options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., wrote in a report. �The massive upswing in demand for the contracts helped lift the fund�s overall reading of options implied volatility.�

Oil for March delivery increased $3.70 to settle at $89.34 a barrel on the New York Mercantile Exchange. The contract has risen 0.3 percent this week. Oil volume in electronic trading on the Nymex was 1.36 million contracts as of 3:18 p.m. in New York. That�s the highest level since April 13, when volume for both electronic and floor trading reached a record 1.42 million barrels on the Nymex.

Volume totaled 1.01 million contracts yesterday, 50 percent above the average of the past three months. Open interest was 1.52 million contracts.

Crude 15 Minute Chart



click on chart for sharper image

Hedging Plays Push Crude Prices Higher

I was watching crude futures Friday morning (3:00AM Central) and the futures were essentially flat. Friday morning, however, as oil future call buying began, followed by equity call buying on OIL ETFs, oil shot up nearly $4.

What happened is options sellers (the market makers on the other side of those trades), cannot risk being naked short those oil calls and had to hedge by buying futures.

To hedge those short calls, the market makers bought crude futures. This delta hedging activity drove up the price of oil this morning as everyone plowed into the "oil might go to the moon" trade.

No one wanted to be naked short over the weekend. (In a similar fashion, I do not believe JPM is naked short silver futures either, but I wish they would come out and prove it).

If nothing happens over the weekend (which so far appears to be a disproved idea already), oil futures could easily sink next week as the trade unwinds. On the other hand, should unrest spring up in Iran or expand in Saudi Arabia crude prices could soar.

Given that a collapse of the Egyptian government seems likely, and unrest in other areas picking up, if crude prices cannot break north here, then look out below. A short or intermediate-term top is likely in.

For more on the crisis in Egypt, please see ...

Egyptian Police Disappear in Widespread Chaos, Vigilantes Defend Homes; Egypt Video With a Message "We Will Never be Silenced!"

Egypt Closes Banks, Stock Market; Protests Spread to Saudi Arabia, Jordan; Saudi King Backs Mubarak; Reflections on Misguided US Policy

Mubarak's Acts of Cowardice; Obama Calls Mubarak for 30-Minutes; Cell Service, Internet Total Shutdown; Anarchy in Cairo; How Long can Mubarak Last?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Egyptian Police Disappear in Widespread Chaos, Vigilantes Defend Homes; Egypt Video With a Message "We Will Never be Silenced!"

Here is another video to consider, with video credit to Tamer Shaaban. It has close to 400,000 views when I saw it.

I like one protester's message in the video ... "We will not be silenced. Whether you are a Christian, whether you are a Muslim, whether you are an atheist, you will demand your goddamn rights, and we will have our rights one way or the other! We will never be silenced!



If the embed above does not play, here is a link: http://www.youtube.com/watch?v=ThvBJMzmSZI&sns=fb

Egyptian Police Disappear in Widespread Chaos, Looting Spreads,Vigilantes Defend Homes

Please consider Egypt vigilantes defend homes as police disappear

Egyptians armed with guns, sticks, and blades have formed vigilante groups to defend their homes from looters after police disappeared from the streets following days of violent protests.

Banks, junctions and important buildings previously guarded by the police and state security were left abandoned Saturday and civilians have quickly stepped in to fill the void.

"There are no police to be found anywhere," said Ghadeer, 23, from an upscale neighborhood. "Doormen and young boys from their neighborhoods are standing outside holding sticks, razors and other weapons to prevent people from coming in."

Police withdrew from the streets when the army was sent in to take over security in Cairo. Witnesses have since seen mobs storming supermarkets, commercial centers, banks, private property and government buildings in Cairo and elsewhere.

Egyptians have called for army intervention to bring back law and order. Saturday, many protesters changed: "No to plundering and no to destruction.

Dozens of shops across Egypt have painted display windows white to hide contents and discourage looting. A cash machine was broken in an upscale neighborhood, witnesses said.

"They are letting Egypt burn to the ground," said Inas Shafik, 35.

Several government buildings were set ablaze during days of protests against President Hosni Mubarak's 30-year rule. They were often left to burn without the intervention of authorities.

Islamic leaders have in the meantime called on people to join vigilante groups to protect their homes themselves. Yet, scenes of looting appeared to spread from upscale parts of Cairo to downtown and poorer areas as well.

Some 700 prisoners escaped in Fayoum, south of Cairo, and killed a senior police officer, sources said. Another senior police officer was also kidnapped in Damietta, a witness said.

"They are torching down the prisons. Our lives and property are at risk. Get out of the way," one shopper shouted, echoing the anxieties of many as they raced to stock up at supermarkets.

Others stayed penned inside their homes for fear of what they said were marauding gangs in some areas. Friday, looters broke into the Egyptian Museum -- home to the world's greatest collection of Pharaonic treasures -- and destroyed two pharaonic mummies, said Zahi Hawass, Egypt's top archaeologist.

In walled-off estates on the outskirts of Cairo, private security locked down gates and refused to let people in.

Ghadeer said: "The looters want to plunder and the government is washing its hands clean of any responsibility."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Egypt Closes Banks, Stock Market; Protests Spread to Saudi Arabia, Jordan; Saudi King Backs Mubarak; Reflections on Misguided US Policy

One sure way to get people fired up is to shut down the stock market and all the banks, thereby denying citizens access to their money. Yet, that is exactly the desperate course of action chosen by Egyptian President Hosni Mubarak.

Protests have now spread to Saudi Arabia, and Jordan. So far however, the protests in Saudi Arabia are of a peaceful nature, mostly related to government response to flooding. Recent history suggests that may change at any moment into something far more significant.

In a move that can easily backfire, the Saudi king defended Mubarak and offered support.

Meanwhile, in Jordan, the pace of protests have now picked up as opposition supporters have held rallies in Amman and called for the resignation of Jordan's prime minister.

Egyptian Bourse, Banks to Close

Bloomberg reports Egyptian Bourse, Banks to Close Tomorrow on Unrest

The Egyptian bourse will be closed tomorrow after thousands of protestors congregated in central Cairo for a fifth day and President Hosni Mubarak ignored demands to resign. Banks will also be shut, State TV said.

�No one expected this to take place and at such a fast sequence of events,� said Mohamed Radwan, head of international sales at Cairo-based Pharos Holding for Financial Investment. "The critical time frame for the market is from now until the implementation of economic and democratic reforms demanded by the people."

Soldiers, backed by armored carriers and tanks, are guarding banks and government buildings in the capital after acts of looting and theft yesterday. Forty people were killed and another 1,100 people were injured yesterday and today in the clashes that have swept major cities including Cairo, according to the Egyptian Health Ministry. The government of Prime Minister Ahmed Nazif resigned today at Mubarak�s request.

Domino Effect

Bloomberg reports Saudi Stocks Decline Most Since May as Egyptians Defy Curfew

Saudi Arabian shares retreated the most since May on concern political unrest could spread in the Middle East after Egyptian protesters clashed with police and the North African country�s president refused to resign.

The Tadawul All Share Index tumbled 6.4 percent, the most since May 25, to 6,267.22 at the 3:30 p.m. close in Riyadh. All but one of the 146 shares fell. Saudi Basic Industries Corp., the world�s largest petrochemical maker, slumped 7.5 percent. Savola Azizia United Co., a food producer with subsidiaries in Egypt, dropped 10 percent, the maximum fluctuation allowed in a single trading session.

�There is a lot of worry looming among investors that we�re going to see a domino effect across the region,� said Amro Halwani, a trader at Shuaa Capital PSC in Riyadh. �That is pushing investors away from equities and straight into cash. It is panic selling across the board.�

Mubarak appoints leaders as protests rage

MarketWatch reports Mubarak appoints leaders as protests rage

Mubarak appointed his intelligence chief, Omar Suleiman, vice president and named former civil aviation minister Ahmed Shafik prime minister. Shafik was charged with setting up a new government.

The appointment of the 74-year-old Suleiman may signal that Mubarak won�t run again in presidential elections in September. But the appointments of Suleiman and Shafik didn�t slow protestors� demands for Mubarak�s resignation or immediately satisfy the Obama administration.

�The Egyptian government can�t reshuffle the deck and then stand pat,� U.S. State Department spokesman P.J. Crowley wrote Saturday on Twitter. �President Mubarak�s words pledging reform must be followed by action.�

Protests Call for Ouster of Jordanian Prime Minister

Anti-government action in Jordan picked up and Jordanian Protesters Say Prime Minister Must Go

Taking their cue from Tunisia and Egypt, an estimated 3,000 Jordanians marched through the streets after Friday prayers, demanding the resignation of Prime Minister Samir Rifai and calling for political and economic reforms.

They warned corrupt Arab leaders would face the same fate as ousted Tunisian President Zine El Abidine Ben Ali.

Peaceful protests were also held in the cities of Irbid, Karak, Maan, and Diban, AFP reported. Jordan has a population of six million, 70 percent of whom under the age of 30. Official unemployment is running at about 14 percent, but other estimates put joblessness at 30 percent.

The government says it is pumping around $500 million into the economy to improve the people's standard of living.

Peaceful Protests in Saudi Arabia

In Saudi Arabia, Dozens of protesters arrested in Jeddah

Dozens of protesters have been arrested in Saudi Arabia's second biggest city after they protested against the weaknesses of infrastructure of Jeddah.

The protests were triggered on Friday after floods swept through the city, killing at least four people, and raising fears of a repeat of the deadly 2009 deluge, in which more than 120 people lost their lives.

On Wednesday, torrential rains caused flooding that swept away cars and downed electric lines in Jeddah.

The oil-rich kingdom lacks the basic necessary systems and structures to drain water out of the residential areas during a heavy rainfall.

Given infrastructure is this bad, I have a simple question: What the hell is Saudi Arabia doing with all the oil money it receives?

I also have an answer: It is going into the pockets of billionaire sheiks who have more money than they possibly know what to do with. The same could be said for multi-billionaires everywhere.

Saudi Protest Video




Saudi king vows support for Mubarak

Inquiring minds are likely pondering the wisdom of this action: Saudi king vows support for Mubarak

Saudi Arabia's King Abdullah ensures Mohamed Hosni Mubarak of his support amid nationwide protests against the Egyptian president's three-decade-long rule.

In a Saturday telephone conversation with Mubarak, Abdullah Ibn Abdulaziz Al Saud described the popular movements as "tampering with Egypt's security and stability in the name of freedom of expression,� AFP reported.

The Saudi king branded the protesters as "intruders" and said, �Saudi Arabia stands with all its power with the government and people of Egypt."

The comments came after a Human Rights Watch report lambasted Riyadh earlier in the week for mistreatment of women, foreign labor and the Kingdom's Shia minority.

There is widespread approval among Arabs for the ouster of Egyptian President Hosni Mubarak. Offering support to someone who is clearly despised does not seem like a prudent move to me.

Reflections on Decades of Misguided US Policy

President Obama is attempting to play this from both sides as best he can. For more details on his phone conversations with Mubarak, please consider

1. Mubarak's Acts of Cowardice; Obama Calls Mubarak for 30-Minutes; Cell Service, Internet Total Shutdown; Anarchy in Cairo; How Long can Mubarak Last?


2. Egypt Calls in Army, Imposes Curfew; Mubarak Orders Ministers to Resign; US Puts Egypt Aid Under Review; Will the US Get this one Right?

It's important to note that I am not talking about mistakes in current US policy but rather misguided policy decisions over the decades.

• We supported a corrupt Shah of Iran and look at the results.
• We supported Iraq on the hopelessly flawed theory "the enemy of my enemy is my friend." There are pictures of Rumsfeld shaking hands with Hussein.
• We gave chemical weapons to Iraq.
• Our intelligence do not see the takeover of the US embassy in Iran coming.
• Our CIA trained Bin Laden to fight Russia in Afghanistan. Now we are hunting Bin Laden and fighting in Afghanistan.
• We have wasted trillion of dollars in both Iraq and Afghanistan and all we have to show for it is more enemies.

Contrast that that with our actions in Tunisia. We did not spend a dime, nor did our intelligence efforts even see it coming. Yet, in Tunisia, a protest by the people overthrew overthrew Tunisian strongman Zine el Abidine ben Ali.

Wall of Fear Comes Down

The La Times reports Fearless protesters challenge regimes around Middle East

Reporting from Tunis, Tunisia � A wall of fear has come down.

All across the Arab world, people living under the thumb of repressive leaders are rising up against the rulers who once seemed omnipotent.

They are using the Internet to network and spread the word. They are watching themselves on satellite television. They are drawing strength from the hyperactive energy of the frustrated young people dismissed and discarded by their governments.

It is a contagious spirit.

"It's like a transition moment in the Arab world," said Mohammad Abou Rouman, a political researcher at the University of Jordan, in Amman, where protests erupted Friday. "It's the influence of the Tunisian domino, and it will not stop. It will go to other Arab states."

The uprisings are having a ricochet effect across the Arab world. People are watching the events unfolding on television and Facebook and identifying with the people in the streets.

"I was with my friends on Facebook, and we encouraged each other," said Dali ben Salem, a 25-year-old intern in pharmacy in Tunis. "The solidarity helped me to face the fear."

And whether or not Egyptian President Hosni Mubarak manages to survive what one analyst called a political "tsunami" that is enveloping the Arab world, things will never return to normal, analysts said.

War of the Future

How much money did the US spend on misguided missile programs and misguided missile defense systems, only to be defeated by a group of hijackers with razor blades? Is there more of a threat from a suitcase bomb or a missile?

How much money do we waste keeping troops in 140 countries where they are mostly not wanted?

Please remember Bin Laden's primary objection to the US was that US troops were on sacred Arab soil. So why do we do it? What has it brought us but misery?

We have caused countless trillions of dollars of destruction in Iraq, and in Afghanistan. Sadly, the war in Afghanistan is no more winnable than the War in Vietnam.

Quiet revolutions by the people are the war of the future, and the only kind of war that makes any sense.

Please note that Tunisia did not cost US taxpayers a dime. We should not have wasted a dime to get rid of Hussein either. Iraq was not a threat to the US. Simply put, it was a matter for the Iraqi people to settle, not us.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Creative Art of Bullish Excuses: Stock Market Still "Good to Go"; Hook Has Been Set

While reading more on the Egyptian riots in a Bloomberg article, I found this nice quip on global equity prices.

European stocks retreated this week as escalating protests in Egypt and an unexpected drop in the U.K.�s gross domestic product offset accelerating U.S. economic growth in the fourth quarter.

Next Plc, Britain�s second-biggest clothing retailer, slumped 7 percent this past week as the U.K. economy shrank.

�Some of the European data was weak and the U.K�s gross domestic product was lower than expected, although the message on the U.S. economy is still okay to good, which should support equity markets going forward,� said Simon Maughan, co-head of European equities at MF Global UK Ltd.

Creative Art of Bullish Excuses

That statement from Simon Maughan is just the kind of "BS" I talked about in Market Participants "Learn the Wrong Lesson" from Bernanke; Conflicts of Interest in "Stay the Course" Advice.

It is more than a stretch to suggest global equities will be fine on the basis of the US economy alone, especially when there should be huge concerns about the imbalanced, stimulus-fed US economy and the unbalanced global economy in general, especially overheating in India and China, and property bubbles in the UK, China, and Australia.

Moreover, Maughan did not mention valuation, or risks. He was simply looking for any excuse to say "buy stocks".

I do not know whether the stock market goes up or down from here, but his statement is absurd from many angles, especially valuation.

Hook Has Been Set

If stocks do head down now, a hook has been set. That "hook" is blaming this all on Egypt, with a message "buy the dip".

One of these "quick, little dips" will be neither quick, nor little. Whether this is the one, remains to be seen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mubarak's Acts of Cowardice; Obama Calls Mubarak for 30-Minutes; Cell Service, Internet Total Shutdown; Anarchy in Cairo; How Long can Mubarak Last?

The situation in Egypt has gone from bad to worse. Cairo is in a state of near-anarchy and Egyptian President Hosni Mubarak's cowardly disruptions to the internet and cell phones have made things worse.

Egyptian citizens unable to get news on the internet or cell phones have only one place to get it now, the street.

President Obama called Mubarak in a 30-minute phone call. Obama's message was "Ultimately, the future of Egypt will be determined by the Egyptian people."

If that was a hint, Mubarak did not get it. Instead, Cairo is in flames as protesters have turned more defiant.

Mubarak Orders Crackdown, With Revolt Sweeping Egypt

The New York Times reports Mubarak Orders Crackdown, With Revolt Sweeping Egypt

With police stations and the governing party�s headquarters in flames, and much of this crucial Middle Eastern nation in open revolt, President Hosni Mubarak of Egypt deployed the nation�s military and imposed a near-total blackout on communications to save his authoritarian government of nearly 30 years.

Friday�s protests were the largest and most diverse yet, including young and old, women with Louis Vuitton bags and men in galabeyas, factory workers and film stars. All came surging out of mosques after midday prayers headed for Tahrir Square, and their clashes with the police left clouds of tear gas wafting through empty streets.

By nightfall, the protesters had burned down the ruling party�s headquarters in Cairo, and looters marched away with computers, briefcases and other equipment emblazoned with the party�s logo. Other groups assaulted the Interior Ministry and the state television headquarters, until after dark when the military occupied both buildings and regained control. At one point, the American Embassy came under attack.

Six Cairo police stations and several police cars were in flames, and stations in Suez and other cities were burning as well. Office equipment and police vehicles burned, and the police seemed to have retreated from Cairo�s main streets. Brigades of riot police officers deployed at mosques, bridges and intersections, and they battered the protesters with tear gas, water, rubber-coated bullets and, by day�s end, live ammunition.

Cairo in Near-Anarchy

The Washington Post reports Cairo in near-anarchy as protesters push to oust president

The Egyptian capital descended into near anarchy Friday night, as the government sent riot police, and then the army, to quell protests by tens of thousands of demonstrators determined to push President Hosni Mubarak from office.

By the end of the day-long battle, the protesters were still standing and the police were nowhere to be seen.

It remained unclear late Friday night what role the Egyptian military might play. Mubarak, a former air force officer, draws much of his strength from the military, and any decision by the armed forces to withdraw support would mean the certain end of his reign.

But unlike the police, which unleashed an arsenal of weapons against the demonstrators, the military did not take any immediate action, and protesters gleefully welcomed the soldiers' arrival in a thundering of personnel carriers.

Protesters were honking their horns in celebration and roaming freely through central parts of the city late in the evening, in defiance of a strict curfew. The night air was thick with black smoke, and the sounds of explosions, gunshots, sirens, cries and occasional cheers echoed through the darkness.

Success in ousting Mubarak would be a remarkable achievement for a group of demonstrators who have no charismatic leaders, little organization, and few clear objectives beyond removing this nation's autocratic president and other members of his ruling clique.

Before this week, few thought a mass anti-government movement was possible in Egypt, a country that has little experience with democracy. But after Friday's protests, the campaign to oust Mubarak only seems to be gathering strength.

The Washington Post has a stunning set of 57 Egypt Riot Images, some of the best I have seen yet. Here are a few of them.



Jan. 29, 2011
In this photo released by China's Xinhua News Agency, demonstrators climb up armored vehicles at Square Tahrir in Cairo, Egypt early Saturday.
Cai Yang / AP



A protester burns a picture of Egypt's President Hosni Mubarak during clashes in Cairo on Jan. 28, 2011.
Amr Abdallah Dalsh / Reuters



Egyptian protesters face anti-riot policemen in Cairo on Friday, Jan. 28, 2011. The riots escalated throughout the day.
Victoria Hazou / AP



Army tanks line up in Tahrir Square in Cairo.
Peter Macdiarmid / Getty Images



Thousands of protesters gather in Tahrir Square despite a curfew.
Peter Macdiarmid / Getty Images

Egypt Cuts Off Most Internet and Cell Service

The New York Times reports Egypt Cuts Off Most Internet and Cell Service

Autocratic governments often limit phone and Internet access in tense times. But the Internet has never faced anything like what happened in Egypt on Friday, when the government of a country with 80 million people and a modernizing economy cut off nearly all access to the network and shut down cellphone service.

The shutdown caused a 90 percent drop in data traffic to and from Egypt, crippling an important communications tool used by antigovernment protesters and their supporters to organize and to spread their message.

Vodafone, a cellphone provider based in London with 28 million subscribers in Egypt, said in a statement on its Web site that �all mobile operators in Egypt have been instructed to suspend services in selected areas.� The company said it was �obliged to comply� with the order.

Egypt, to an unprecedented extent, pulled itself off the grid.

Obama Calls Mubarak, Talks 30-Minutes

Bloomberg reports Obama Tells Mubarak He Must Stick to Pledge of Egyptian Reforms

President Barack Obama told Egyptian President Hosni Mubarak last night he must live up to promises he made about political, social and economic reforms following the fourth day of anti-government demonstrations across Egypt.

Obama delivered the message in a 30-minute phone call between the two leaders that followed public remarks by Mubarak in which he asked the country�s government to resign and pledged to fight poverty, speed economic and social changes, and promote civil liberties and democracy.

In a televised address to the Egyptian people just after midnight Cairo time, Mubarak said he asked his ministers to resign and promised that the new government would speed reforms and promote civil liberties. He defended his response to widespread demonstrations, which has included ordering the army to help police impose a 6 p.m. to 7 a.m. curfew by sending armored vehicles and tanks into the streets.

Obama responded that �this moment of volatility has to be turned into a moment of promise.� He also called on the Egyptian government to end the blocking of the Internet, including social networking sites that protesters have used to organize.

�Ultimately, the future of Egypt will be determined by the Egyptian people,� Obama said. �Governments have an obligation to respond to their citizens.�

At the White House, Obama said the Egyptian protestors were exercising �universal� rights to peaceful assembly and association, free speech and �the ability to determine their own destiny.

�These are human rights,� he said. �And the United States will stand up for them everywhere.�

Mubarak's Acts of Cowardice

Shutting down the internet is an act of cowardice. Firing all your ministers while pledging reform is an act of cowardice. So is ordering Vodafone to shut down cell phone usage. Sending tanks into the street is certainly an act of cowardice.

Not only are those acts of cowardice, they have backfired. People are in open defiance of curfews. After all, they have no way to get the news but see it themselves in the streets.

By the way what is a tank supposed to do anyway? Is it really going to fire on the people? Check out that first image again. Protesters are crawling all over those tanks and armored vehicles.

As I see it, the only thing tanks can possibly do is get people stirred up. Yet, the only thing holding Mubarak's corrupt regime together is the military.

Mubarak came up from the military so there is some loyalty there. However, the military has some genuine support from the people (unlike the despised state police), and I doubt the military will want to lose that support.

How long the military will support Mubarak is the key question at this point. I suspect not long if these riots continue.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Egypt Calls in Army, Imposes Curfew; Mubarak Orders Ministers to Resign; US Puts Egypt Aid Under Review; Will the US Get this one Right?

The violence in Egypt continues to escalate with more protests, fire bombs, and buildings set ablaze. Protesters burnt the headquarters of Egyptian President Hosni Mubarak's ruling party to the ground. The US embassy was also attacked, but so far, those protesters have been turned back.

President Mubarak imposed curfews, however, those curfews were ignored. When shutting down the internet failed, Mubarak's next step was to bring in the army.

Egypt Calls In Army as Protests Rage

The New York Times reports Egypt Calls In Army as Protests Rage

After a day of increasingly violent protests throughout Egypt, President Hosni Mubarak ordered the military into the streets to reinforce police struggling to contain riots by tens of thousands of Egyptians that posed one of the most serious challenges to his long and autocratic rule.

The president also imposed an overnight curfew nationwide, but demonstrators defied the order, remaining in the streets of the capital, setting fire to police cars and burning the ruling party headquarters to the ground. As smoke from the fires blanketed one of the city�s main streets along the Nile, crowds rushed the Interior Ministry and state television headquarters, but the military moved into the buildings to establish control. Protesters also tried to attack the American Embassy.

Calling out the military is a signal of how dramatically the situation had spiraled out of control after four days of demonstrations. The army, one of the country�s most powerful and respected institutions, prefers to remain behind the scenes and has not been sent into the streets since 1986.

But the police, a much reviled force prone to violent retribution against anyone who publicly defies the state, appeared unable to quell the unrest despite a heavy-handed response that included beatings of protesters and the firing of a water cannon at Nobel laureate Mohamed ElBaradei. In several cases in the capital and elsewhere, the police were forced to back down by throngs of protesters.

In one of the most arresting scenes of the day, in Alexandria, protesters snatched batons, shields and helmets from the police. Honking cars drove up and down a main street, holding police riot shields and truncheons out the windows as trophies.

In both Cairo and Alexandria, some army patrols were greeted with applause and waves from the crowds � a seemingly incongruous response from demonstrators who say they want to bring down the president. But many people support the army for its success in shocking the Israeli Army with a surprise attack in 1973 and for its perceived reluctance, at least in the past, to get involved in politics.

As the chaos continued, it appeared some Egyptians might be taking steps on their own to stop any destruction. An Al Jazeera correspondent, who had spoken by phone to eye witnesses at the National Museum, said that thousands of protesters had formed a �human shield� around the museum to defend from possible looting of antiquities, though there were no confirmed reports that such looting had begun.

Violent Clashes on the Streets of Cairo

The NYT has a 21-image Slideshow of the Violent Clashes on the Streets of Cairo. Here are 3 of the 21 images.



Tahrir Square on Friday night. Internet and cellphone connections have been disrupted or restricted in Cairo, Alexandria and other places, cutting off social-media Web sites that had been used to organize protests and complicating efforts by the news media to report on events on the ground.

Credit: Peter Macdiarmid/Getty Images



The unrest in Egypt � fueled by frustrations over government corruption, economic stagnation and a decided lack of political freedom � came after weeks of turmoil across the Arab world that toppled one leader in Tunisia.

Credit: Scott Nelson for The New York Times



The protests across Egypt have underscored the blistering pace of events that have transformed the Arab world, particularly among regimes that have traditionally enjoyed the support of successive administrations in Washington.

Credit: Mohamed Omar/European Pressphoto Agency

Mubarak Orders Ministers to Resign

The people clearly want the Egyptian president to resign, instead, Mubarak Orders Ministers to Resign.

President Hosni Mubarak of Egypt appeared on television late Friday night and ordered his government to resign, but backed his security forces� attempts to contain the surging unrest around the country that has shaken his 28-year authoritarian rule.

He did not offer to step down himself and spent much of the short speech explaining the need for stability, saying that while he was �on the side of freedom,� his job was to protect the nation from chaos.

Secretary of State Hillary Rodham Clinton, reading a prepared statement, called Friday on Egypt�s government to �restrain the security forces� and said that �reform is absolutely critical to the well-being of Egypt.� �We urge the Egyptian authorities to allow peaceful protest and to reverse the unprecedented steps it has take to cut off communications,� she said, apparently referring to interruptions in Internet and cellphone connections in some cities. She also urged that protesters �refrain from violence and express themselves peacefully.� After her comments, the State Department issued a travel alert cautioning Americans against all nonessential trips to Egypt in the next month.

Images of the lowly challenging the mighty have been relayed from one capital to the next, partly through the aggressive coverage of Al Jazeera. Social networking sites like Facebook and Twitter have given the protesters a potent weapon, enabling them to elude the traditional police measures to monitor and curb dissent. But various regimes have fallen back on a more traditional playbook, relying on security forces to face angry demonstrators on the streets.

U.S. Puts Egypt Aid Under Review

Bloomberg reports U.S. Toughens Stance on Mubarak; Puts Egypt Aid Under Review

�The people of Egypt are watching the government�s actions, they have for quite some time, and their grievances have reached a boiling point and they have to be addressed,� White House press secretary Robert Gibbs told reporters in Washington. The U.S. will be looking at its �assistance posture� toward Egypt, Gibbs said.

�For the U.S., any effort on our part to provide support for Mubarak is going to be read in Egypt as support for a crackdown and support for an undemocratic regime,� said Steven Cook, a fellow at the Council on Foreign Relations in Washington. �We need to be forward looking for this.�

More than 80 percent of U.S. aid to Egypt, or $1.3 billion, is in the form of military assistance, according to data supplied by the U.S. State Department. With President Barack Obama in power, military aid has stayed unchanged and economic assistance has been cut to $250 million from $411 million in 2008 with the phasing out of democracy-linked programs.

The amount of money Egypt receives from the U.S. is exceeded only by Afghanistan, Pakistan and Israel, based on the State Department�s budget request for the current fiscal year.

After four days of demonstrations, the top U.S. diplomat for the first time said the U.S. was �deeply concerned� about the crackdown by security forces and police. Clinton was the highest U.S. official in the administration to speak on the matter today.

�These protests underscore that there are deep grievances within Egyptian society and the Egyptian government needs to understand that violence will not make these grievances go away,� Clinton read out in a statement in Washington. �We think that moment needs to be seized.�

Clinton urged the Egyptian government to �reverse the unprecedented steps it has taken to cut off communications.� Clinton still referred to Egypt, without naming Mubarak, as an �important partner� in the Middle East.

The US is in a very tough spot and has to guess how this will play out. If President Mubarak survives, the US does not want to alienate him. If he doesn't survive (and I bet he doesn't regardless of the short-term outcome), the US does not want to alienate those who take over.

Such thinking explains the careful statements by Hillary Clinton calling Egypt an important partner, not President Mubarak an important partner.

Look at the military and other aid we pour into the region (Egypt, Afghanistan, Pakistan, Israel, Saudi Arabia, Yemen, Iraq, Kuwait) in a hypocritical attempt to be on all sides of multiple fences simultaneously, shaking hands with dictators one day, invading their country the next. Has it been worth it? How?

The wars in Iraq and Afghanistan were a complete waste of trillions of dollars. We failed to capture Bin Laden, did not make the region more stable, and made more enemies than before the wars started.

Maybe we will get this one right, but history suggests otherwise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Ping-Pong Seasonal Madness In Weekly Jobs Claims; How to Predict Whether the 4-Week Moving Average Will Rise or Fall

Weekly unemployment claims have been all over the map recently. Here are the seasonally-adjusted Weekly Unemployment Claims totals for the last 5 weeks.

Jan 27, 454,000
Jan 20, 403,000
Jan 13, 447,000
Jan 06, 411,000
Dec 30, 388,000

The first three numbers above are from the current report. I calculated the January 6, number. The December 30 number is from the archives.

The reported seasonally-adjusted number on January 6 reporting was 409,000. It was revised up but no one saw that revision.

The reason no one can easily spot revisions is the weekly report only gives the latest 3 weeks. I calculated January 6th number from the 4-week moving average, now reported as 428,750.

A similar calculation looking at the January 20 Weekly Claims Report shows that December 30, was revised up from 388,000 to 391,000. These are small revisions but even large ones would be hard to spot if you do did not do the math or go to the archives.

Computing the Missing Number and Hidden Revisions

The 4-week moving average is constructed from the current 4 weeks. However the report only shows 3 weeks. To compute the week not shown, take the 4-week moving average (SA) and multiply by 4. Subtract the last three weeks shown on the report. What remains is the hidden 4th week used to compute the 4-week moving average.

Moreover, the difference between that number and was was originally reported for that number is a hidden revision.

Gaming the 4-Week Moving Average

If you want to pace a bet on whether the 4-week moving average will rise or fall, you need to know the number to beat and how to calculate it.

The number to beat is the missing number (as described above), about to roll off. In this case, 411,000.

Assuming no revisions, a number higher than 411,000 will cause next week's 4-week moving average to rise. A number below 411,000 will cause next week's 4-week moving average to drop.

My guess is the 4-week moving average will rise next week and fall the following week when the January 13 of 447,000 rolls off the report.

Clearly, if you are attempting to predict such numbers, it is critical to look at the number about to roll off.

What's With The Ping-Pong?

Revisions and hidden numbers aside, inquiring minds are asking about the ping-pong.

What's happening is most analysts are misinterpreting seasonal data. It is clear that seasonal hiring picked up in October for the Christmas season. This hiring pattern happened one month sooner than normal. Moreover, some of those people were no doubt kept on (not let go in the traditional after-Christmas employee dump).

In my opinion this is a one-time effect, not a mad rush by retailers (or anyone else) to hire people. With that in mind, one should have expected, in advance, to see large drops in seasonal claims.

Previously, I had commented on the possibility that we might see a couple of hot jobs numbers at the beginning of the year. Certainly the February BLS Jobs Report (for January data) might be impacted by atypical Christmas skew that started early. Also the January data itself is subject to BLS twice-annual revisions. Finally, the BLS is changing the way it does revisions next month, going to quarterly revisions.

If you can game all that, good luck.

While the trend in unemployment claims is likely getting better. I rather doubt the numbers are as good as most think.

Certainly yesterday's reported number of 454,000 may have been impacted by snow, but what about the January 13th number of 447,000?

If this was not messy enough already, next week may again have skew because of snow. Regardless, I do not think we can successfully interpret data for a few more weeks until it is clear that skews caused by changes in Christmas season hiring have ended.

When it does, I believe we will see improvements in weekly claims, but not enough to get overly excited about or enough to cause anyone to believe a big source of jobs is just around the corner.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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