- The Washington Times - Thursday, February 10, 2011

Watching the crisis in Egypt unfold, many Americans are wondering about the final outcome. Indeed, Egyptian President Hosni Mubarak and his government have been a strong Middle East ally for more than 20 years. But that doesn’t make Mubarak a good guy when it comes to human rights. The Egyptian people are fed up and perhaps rightly so.

Our government is urging a transition of political power through the democratic process. Such an outcome certainly would be in the best interests of the United States. On the other end of the spectrum, if power is seized by a group of radical Islamists, the stability of the Middle East could worsen and the economic recovery the world is hoping to see might stall.

Having said that, what might we, as American consumers, expect from our own economic point of view from the Egyptian crisis?

First, investing in international and global mutual funds always carries political risk. I noticed in the headlines last week that the Nile Pan Africa fund, which is an open-ended fund that invests in the African continent, was down 7 percent from Jan. 13 to Feb. 3. It also was noted that just 8 percent of the fund’s assets are in the Egyptian market.

Second, energy prices can go wild during times of political unrest in the Middle East. Oil prices spiked as soon as the riots began. This ultimately can affect our cost of getting to and from work every day.

Third, it’s good to look at interest rates. One might wonder how political turmoil in a faraway country could affect U.S. interest rates, including mortgage rates. On the one hand, rates could fall because of the “flight to quality” effect. Individual, institutional and government investors have money invested all over the planet. In times of regional or global crisis, international investors often pour money into U.S. Treasury bonds because they still are perceived to be, and very likely are, the safest place to put money.

A strong demand for U.S. Treasuries raises the price and lowers the yield, resulting in lower interest rates across the board.

On the other hand, the Egyptian crisis could cause inflation - or the perception of inflation - especially if oil prices jump. Investors pull their money out of Treasury bonds during periods of inflation. This would cause the prices to drop and rates to rise.

Meanwhile, a weak American housing market is in the background while this situation plays out. The outcome of the Egyptian crisis could, indeed, significantly affect all Americans.

Send e-mail to henrysavage@pmcmortgage.com.

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