I remember reading last year the almost threatening advice from a stock-broker who claimed, "If your investment advisor isn't putting you into African investments, they simply do not have a world view" or a clue as the rest of the article went.
Fad investments, while not new, took on new resiliency in 2010. Burned by traditional wealth building blocks like stocks and real estate, and unable to earn anything from bonds, investors plunged into riskier investments with reckless abandon. Frontmen touting the potential of commodities, distressed properties, antiques, junk bonds, and emerging market stocks and bonds became part of the new investing lexicon in a low-interest rate world. Can't earn a lousy 4% on a US Treasury? Then buy higher-yielding sovereign debt (bonds of foreign nations)! Tired of debt problems and a bleak European economic outlook? Then look to the BRIC countries (Brazil, Russia, India, China) and Africa many of which are commodity based whose raw materials are fueling the next big economic revival.
Ah, commodities and specifically oil from the Middle East. This appeared to be the sole focus of some money managers as I read their reaction to the overthrow of Hosni Mubarak of Egypt. Said one, "to me, it's like a natural disaster, in terms of the economic impact... it doesn't have as much to do with economics as it has to do with politics". I wouldn't characterize the potential loss of a pro-Arab ally that signed a peace treaty with Israel and who controls the Suez Canal (through which approximately 40% of the world's oil flows) a natural disaster like a hurricane. Said another, "The importance of Egypt is geographical. It's only a $200 billion economy with 80 million people... as long as the army remains organized, the canal will stay open." Armies are not democracies. It remains to be seen whether the more secular or radical Islamists take hold of the opposition-leading Muslim Brotherhood. Stability is no sure thing regardless of what the army does.
With the future of such a vital world region in doubt, we need to drop our naivete and simplistic world view for one that confronts the current and long-term realities. For 20 years, we have had US fighting ground troops engaged off and on since the 1991 Gulf War that liberated Kuwait. This means a generation of Middle East youths have seen American troops fighting in their area of the world their entire lives. This is a protracted problem that will continue for the forseeable future.
Money managers who view this region simply in terms of oil and stability will fail to anticipate the social and political changes that impact money flows and investments. For political as well as economic reasons, our attention will increasingly be drawn to the Middle East and other troubled areas throughout the world.
Lets hope we investment advisers have our minds as well as our eyes fully open and avoid the mentality of another adviser who stated, "Long-term, this is a blip on the radar screen". Hardly.
