Market Talk

This just in: gas costs $3.50 a gallon. If it doesn’t where you live, just wait. It soon will.

The AAA’s daily fuel gauge shows the national average for regular is $3.50. I believe it was $3.47 on Friday. There’s nothing magical about the $3.50 level, except for its psychological effects.

The big problem is that with $3.50 here, the $4 level comes within hailing distance, and it was when gas prices hit $4 in the summer of 2008 that the feta really hit the fan.

Listen, the real fear here isn’t an end-of-the-world kind of thing. Whatever happens in the Middle East, at some point the world will return to something approaching normal, like it always does (which is not exactly the same as normal; when you think about it, we live in a pretty dysfunctional world.) The real fear, for us here in the U.S. at least, Europe, too, for that matter, is that the uprising drives oil prices high enough to derail the recovery.

Crude prices are up more than $2 this morning, pushing Nymex crude futures to near $107/barrel. Brent, the European benchmark that is more directly affected by the events in Libya, is pushing $118/barrel (and lots of people note that a big chunk of U.S. gas prices, being imported, are more sensitive to Brent prices than Nymex.) Given that it takes a few weeks for crude prices to filter through to y0ur local service station, you can expect that prices will keep rising.

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I hope that in the long run, the Jasmine Revolution sweeping North Africa will be a good thing for the world. Much depends upon who comes to power post-revolution, of course, (anybody remember Napoleon?), but any movement that is about getting rid of autocratic, dictatorial tin-pot despots ought to be a good thing in the long run.

Keep in mind that the people of North Africa and the Middle East don’t have a history with democracy. This isn’t to say that they can’t embrace democracy, but it takes time. Democracy blossomed in the United States, but it didn’t come full grown on July 4, 1776.

The movement toward self-government had been festering in Europe for more than a hundred years during the Enlightenment. That’s why we were all forced to read Locke and Hobbes in school (do they still even teach Locke and Hobbes?)

The modern Arabian states didn’t exist until the end of World War I and the fall of the Ottoman Empire (don’t worry, this isn’t a college thesis; I’ll be brief.) After that was a period of colonialism that lasted until the ’50s. Then you had popular revolts that threw off the colonials, and replaced them with the despots. There has not been a democratic movement to build upon. It’s possible, and hopeful, that we’re seeing it now. After all, ideas that took a hundred years to filter through a society back in the day move much faster in our electronic world.

It will be interesting to see how the developed world reacts. There is only one thing politicians respect: power (although respect for the ultimate source of their own power, the consent of the governed, seems to elude them.) You saw it in the Panic of 2008. The politicians stepped in not to save the system, but to save the powerful within that system.

Because there are still an awful lot of despots out there. Some of them we still shake hands with. Some of them run the world’s second largest economy, know what I’m saying?

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It seems to be official: Hosni Mubarak has stepped down as Egypt’s president. The Wall Street Journal, CNN, Al Jazeera all reporting the news. Here are some headlines crossing the Tape:

Headline: WSJ: Suleiman Says Mubarak Resigns

Headline: DJ Egypt VP Suleiman Brief Announcement Greeted By Jubilation From Protesters

Headline: DJ Egypt VP: Mubarak Hands Over Power For All Affairs To Military

It’s plastered all over the news now, but Al Jazeera English is running a live feed from Cairo with absolutely no talking heads interrupting. (They’re talking now, but initially just let the moment speak for itself – editors.)

The revolution, my friends, is being televised.

For what it’s worth, stocks are rallying. Dow, down earlier, now up 34 points.

Of course, the question hasn’t really been would Mubarak step down, because clearly Egypt wasn’t going anywhere until he did, whether it was today or in three months or September. The question now, and it has absolutely no clear answer, is what happens politically in Egypt next. That question will hang out there for some time.

Another question is where does the revolutionary fervor go from here? Will it spread to other countries, or does it end in Egypt. Again, absolutely no clear answer, and there won’t be for some time.

But it is a breathtaking scene in Cairo right now.

The premarket picture for US stocks looks similar to yesterday’s early stance, with futures sitting moderately lower following a mixed session for Asian markets and European stocks currently slumping.

While Cisco’s earnings and outlook colored yesterday’s mood, unrest in Egypt is an influence this morning. The protests have brought some volatility to stock markets lately, but investors generally haven’t shown much concern over the situation.

December trade deficit due at 8:30 a.m. ET; Reuters/Univ of Michigan preliminary gauge on February consumer sentiment comes out at 9:55 a.m.

S&P futures down 4.75, DJ futures down 27. Ten-year note higher, yield at 3.67%.

Egyptian President Hosni Mubarak basically just flipped a big bird to the thousands of people out in the streets, mostly youths but joined in the past few days by the nation’s laborers and doctors and lawyers, delivering a defiant speech in which he offered a few, very few, concessions but making it clear he was not stepping down immediately.

Now, this is Market Talk, so we have to talk about this in relation to the markets. And it was a nutty day, nothing like Cairo, but still relatively dramatic. Stocks dropped sharply in the morning, as the long overdue sell-off appeared to arrive. But the market erased the bulk of those losses after word started to spread that Mubarak was going to address the nation, with the widespread consensus that he was going to announce his resignation.

Whether the market was rallying on the news, or using the news as an excuse to rally, well, that’s your call. DJIA finishes down 11 to 12229, after falling more than 80 in the morning; S&P 500 adds 1 to 1322, Nasdaq Comp inches ahead 1 to 2790. Trading in the last half-hour was especially erratic; the Dow came within 0.23 of a point of turning positive, before falling back.

The reaction across asset classes is muted; cruce rises a bit, gold’s down a hair, Treasurys are down, but it has more to do with market internals than the drama in Egypt. Ten-year note yield again hits 3.70% mark.

Mubarak did say he would “delegate” some responsibilities to the newly appointed vice president, Omar Suleiman, who later makes a separate speech in which he implores the people out on the streets to “go home” and work together “in the spirit of a team.”

Suleiman wasn’t exactly a crowd favorite, either. Can’t imagine that one’ll go over well. It’s going to be a long night in Egypt, and tomorrow’s going to be, well, I don’t know what it’s going to be and I don’t even want to speculate. But one observer on Al Jazeera commented that the situation is no longer fluid, it’s volcanic.

Al Jazeera, which is about the only place you’ll be able to see continuous live coverage of Tahrir Square in Cairo, says Hosni Mubarak’s address to the nation is coming in about 15 minutes; It’s currently 2:45 p.m. Eastern time.

It’s trite to say so, but it looks like they’re celebrating winning the World Cup down there. That’s how the mood seems; they’re singing, dancing, waving flags, it’s a huge celebration.

For their sake, let’s hope the people are about to get what they expect.

Talk about timing. John, George and I were literally standing at the set, talking about Cisco’s earnings, when the first headlines started crossing about Mubarak stepping down. If we’d have taped five minutes earlier, we would’ve missed it, and I’d be cursing up a blue streak.

The market has a lot internally to deal with, but you wonder if the bulls will just grab onto the Mubarak news and force yet another rally.

(Incidentally, holy cow do I look small next to those two guys. Somebody get me an apple box.)

Egypt just heated up. Reports are breaking all over town that Hosni Mubarak is going to step down as Egyptian president tonight (we assume that’s tonight, Egyptian time, which is seven hours ahead of eastern US time.)

(U.S. stocks were down sharply, and then cut their losses sharply as word leaked out; still, equities are down overall, the victim of their own long winning streak. Crude oil, which had been largely flat, now up 0.6% at $87.25. You’d expect the crude pits to be a little nervous.)

Already, people are wondering, what next? What’ll happen now? Will the existing power structures remain? Will the people force a wholesale restructuring? Mubarak stepping down was inevitable at this point; the future of Egypt, and the region, however, could go in any of a number of directions.

Here’s the Journal’s story on Mubarak. The money quote:

“I spoke to him as the head of the NDP,” Mr. Badrawy (Hossam Badrawy, head of the National Democratic Party) said. “I told him this is for the good of the nation. This is the only way to restore confidence in Egypt. This is the move that the republic needs.”

Al Jazeera’s live blog says the crowd in Tahrir Square is chanting The army and the people in one hand – the army and the people are united” as the army discusses Mubarak’s “future” – what little of it is left.

BBC says Mubarak will hand power to VP Omar Suleiman. One wonders is the protesters will accept that; seems like they really want an entirely new power structure.

The news on Egypt has moved deep into the A section, even as the standoff there grows. I’m not sure if that’s more a testament to the short attention span of the American people, or the fact that we really just don’t much care what happens in Egypt, or that we can’t get too riled up about what’s happening in Egypt until something definitive actually happens. Maybe it’s a combination of all three.

Hey, we’re as guilty as the next guy. We probably wrote nothing but Egypt for four or five days, and then dropped it totally the past week. It’s just hard to get all fired up about it until something breaks (unless you’re an Egyptian, of course.)

Anyhow, nothing huge has broken. The main battle lines are still in place Hosni Mubarak is still holding onto his office despite the protests. It seems he’s learned a trick or two from the western powers, because his strategy appears to be “extend and pretend.”

But it really seems like the opposition is just growing, and you wonder how much longer he can hold on. At this point, it’s all just for pride’s sake; he’s already agreed to step down at the end of his term. He’s finished either way.

The anti-Mubarak movement is growing, in fact. Yesterday’s news was that laborers were now joining with the protesters. This morning, word is that doctors and lawyers are joining the fray as well, also on the side of the protesters. (A plug for WSJ’s Dispatch blog, they’ve been publishing a steady stream of breaking news on the protests. Good place for the latest information.)

What’s also interesting, to outside western observers at least, and probably to inside observers as well, is that, seemingly, the revolt has stopped, for now at least, in Egypt. There have been some protests in Yemen, and Jordan, and Bahrain, but they’ve been smaller and more peaceful, and more importantly, the governments there are trying to blunt any protests by engaging the protesters.

That doesn’t mean the movement is finished. There sure seems to be more than enough inequality and repression across the Middle East to fuel this thing. But you wonder if the leaders in other countries read the handwriting on the tanks.

That’s not the headline they used over at WSJ.com for this video, but they should’ve. So catchy, don’t you think?

In an interview with DJ Wealth Adviser’s Veronica Dagher, economist Bob Baur at Principal Global Investors touches on a couple of subjects dear to our heart, including how rising food prices are a destabilizing force, the state of the U.S. economy, inflation, and how flat wages are holding it down.