The West Speaks of a No-Fly Zone Against Libya while Stocks Around the World Rally
Mon, Feb 28, 12:41 PM ET, by ForexTraders.com
Unrest in the Middle East seems to be entering a new stage where more frequent and decisive intervention by the so-called international community will have a role in determining the fate of regimes and dictators. NATO, U.S., and the U.N. are reported to be discussing the possibility of an imposition of a no-fly zone over the Libyan air space in order to prevent Mr. Gaddafi`s air force from targeting the population and the armed opposition that is supported by it. We believe that the practical impact of such a decision will be limited. But for future crises, it may well be that a precedent established in Libya could have wide-reaching consequences, one example being the possibility of Western military meddling in Iran with clearly momentous implications. The only reason that we are not observing comparisons of the Arab Revolution to the French or Russian Revolutions is the lack of any ideological innovation guiding the activists, militants and demonstrators. While the grievances voiced by the population are general and are shared globally, the concerns of groups leading the protests remain local, and do not enjoy meaningful international reflections. Vaguely defined demands, hatred of entrenched rulers, a network of loose alliances, and the lack of strong leadership are characteristic of the Arab Revolution, but perhaps many are making too much of this lack of organization since it is only at the later stages of revolutionary events that the true owners of the upheaval, the real drivers of the action come to the surface of the chaotic froth that keeps being reported on news sources. In many other aspects, the Arab Revolution is as significant and comprehensive as the previous significant upheavals in human history. It is influencing a vast area and a large population, and it is a seemingly unstoppable movement depending on novel techniques and methods, and it seems to be setting forth changes that are irreversible. The crucial component of driving ideology may be injected into the structure at a later point, and it may be anything from Western-style democracy, to religious fundamentalism among many other possibilities. Meanwhile, markets are doing very well, with the USD up againt the yen, but lower against the GBP and the Euro, as both of them benefit from the improvement in risk sentiment following yet more positive U.S. data. But the Chinese are continuing to speak of tightening, and preparing the ground for potentially drastic action by reducing growth estimates for this year, and focusing on inflation as their main issue. Premier Wen was quoted today as repeating comments to this effect, and we do not have any reasonable grounds for doubting their sincerity at this stage. All this means that, even if the U.S. economy continues to grow, commodity prices and EM economies will be subject to strong downside growth pressures in the near future justifying a good deal of caution as traders aggressively build up their existing portfolios in anticipation of continuing bull dynamics. This outlook remains predicated on the tentative assumption that the Middle East situation will not deteriorate significantly, and is therefore only useful as a base scenario around which we will continue to construct the more nuanced cases of analysis.
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