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David Kotok of Cumberland Advisors warns that the situation unfolding in North Africa and the Mideast:This is nowhere near over.
By “This”, we mean the regional contagion, spreading violence and rising geopolitical risk in the Middle East and North Africa. Reports say that Libya has stopped producing oil and that pipeline delivery to Europe (Italy) is interrupted. Libya seems headed for complete dismemberment and full-blown civil war.
Note that China is evacuating 15,000 workers. China! Imagine that we learn there are as many workers from China in Libya as there are workers from Egypt. Anyone still think this is a local idiosyncratic event.
We are watching a “sea change” occur among one tenth of the world’s population and among the world’s low cost marginal producers of the world’s energy. Scenarios with benign outcomes and peaceful transitions appear remote.
Note how the region’s worst of the bad actors seize their opportunities where they find them. Every success emboldens them. A case study is Iran’s two ships transiting the Suez. Also, note how the most suppressive regimes like Syria, Iran, Saudi Arabia, Libya have learned how to suppress social networks, cut off cell phones, block internet traffic and reverse or alter the information flows.
The bottom line:
At Cumberland, our US ETF accounts are in the highest cash position they have seen in over two years. We think being full invested when there is a shooting war in a major oil producing country is folly. There is one position that must be maintained. We are high in energy overweight. We are underweighted in consumer discretionary exposure.
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