The Fall of the Arab Spring

Conclusion: The first chapter of the Arab Spring is complete.  In the short term, religious governments will likely take root in the region, which will have important foreign policy considerations for the West.  In the longer term, demographic trends suggest the Arab Spring will have legs.


In the last few months, the Arab Spring has been shifted to the back burner for the media with the acceleration of the European debt crisis.  Even without the daily focus of the Western media, events in the Middle East continue to unfold and are worthy of our consideration.


Stepping back for a second, the key catalyst for the Arab Spring was the Jasmine Revolution in Tunisia.  The protests in Tunisia began on December 17thwith the self-immolation of Mohammed Bouazizi (after police confiscated his unlicensed food stand).  In Tunisia, the initial protest ended with President Ben Ali fleeing the country on January 14th.  Subsequently, we highlighted in a note on January 27th, which was titled “No Longer in the Tail . . . Jasmine Revolution Being Exported”, that this civil unrest would spread broadly across the region, and it has.


The current output of the Tunisian-exported Jasmine Revolution is as follows: 

  • Revolutions in Egypt and Tunisia;
  • Civil war in Libya;
  • Civil uprisings in Syria, Bahrain and Yemen;
  • Two government leaders, in Iraq and Sudan, indicating they would step down;
  • Major protests in Iraq, Jordan, Algeria, Morocco  and Oman;
  • More minor protests in Western Sahara, Saudi Arabia, Sudan, and Kuwait, and Lebanon. 

Arguably, there is at least a symbolic tie-in to the Occupy Wall Street protests that have proliferated across North American.  Although, as of yet, the Occupy Wall Street group has yet to establish that they are truly representative of the majority, let alone the entire “99%”, like their Arab counterparts.


To be fair, part of the reason that media has shifted its focus from the Arab Spring is that major protests have become less plentiful.  Yet, the elixir of future civil unrest in MENA certainly remains.  First, the region is incredibly young, by some estimates 65% of the region is below 30 years of age with above average population growth rates.  Second, the region is grossly under-employed with an estimated 25% of the youngest working-age demographic unemployed.  Finally, the gap between the rich and poor, as measured by the Gini coefficient, is higher in MENA than in any other region in the world.


Even as the potential for future civil unrest remains in MENA based on basic demographic trends, the second derivative effect of the Arab Spring is beginning to manifest itself.  This is the transition from autocratic rule to democratic rule.  The unintended consequences of this shift are that the newly elected governments could be less friendly to the West and, over time, less stable.  This is especially true if political reform is rushed and occurs with little economic reform.


Due to a long nascent political culture in MENA, secular political parties will take time to build and then function effectively.  In the shorter term, religious-based parties will have an advantage given their history and organizational power through their religious leaders.  As a case in point, the Muslim Brotherhood has a history in Egypt that pre-dates the Mubarak government.


Currently, the three countries that have seen the most dramatic shifts in power, Egypt, Tunisia, and Libya, seem poised to become ruled by non-secular political parties.  In Tunisia, an Islamist party, Ennahda, was elected to power in the first election post-Ben Ali.  Next is Egypt, with general elections planned for this month, where the Muslin Brotherhood has been organizing for years, if not decades, for this moment and are poised for a strong showing.  Finally, in Libya, acting Prime Minister Abdurrahim el-Keib has indicated he would like to hold elections within a year, but one of his first acts was to “declare an Islamic state.”


From an investment perspective, we have highlighted in the attached chart the implications of perceived future turmoil.  The attached chart shows the price of WTI, Brent, Copper, and the CRB Index since roughly the beginning of the Arab Spring, just over a year ago.  In that time, Brent has vastly outperformed its commodities peers as competitive flow of sweet crude as been curtailed due to the Libyan civil war, giving Brent an underlying bid.


None of this is at all to suggest that Islamic states will be negative for the West, or negative for peace in the region.  Certainly, though, this shift is critical for us to flag and keep front and center on our risk monitors.  Longer term, even if there is a lull in civil unrest currently, the call of “ash-shab yurid isqat an-nizam”, or “the people want to bring down the regime”, is likely still in early days in MENA.


Daryl G. Jones

Director of Research


The Fall of the Arab Spring - DoR chart1

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more