Monday, November 28, 2011

Barry Lando: Egyptian Military: State Within a State

On Friday, Washington added its voice to Egyptians demanding that the Egyptian military give way to civilian rule. It's instructive, however, to consider why the Egyptian brass are so reluctant.

Their resistance stems not just from a fear of an ultimate takeover by radical Muslims. There is also the fact that real civilian rule could spell an end to the system of massive military corruption and patronage that has gone on for decades in Egypt, a system that has given the military unimpeded control over a huge sector of the Egyptian economy: "a state within a state" as a well-informed Egyptian friend of mine puts it.

That's the state that's now being challenged.

For years, Egypt's top military ranks have enjoyed a pampered existence in sprawling developments such as Cairo's Nasr City, where officers are housed in spacious, subsidized condominiums. They enjoy other amenities the average Egyptian can only dream of, such as nurseries, bonuses, new cars, schools and military consumer cooperatives featuring domestic and imported products at discount prices. In other areas, top officers are able to buy luxurious apartments on generous credit for 10 percent of what those apartments are actually worth.

But we're not just talking about sensational official perks. Many of Egypt's brass are notoriously corrupt. Vast swathes of military land, for instance, were sold by the generals to finance some major urban developments near Cairo -- with little if any accounting.

Other choice military property ran on the Nile Delta and Red Sea coast boasted idyllic beaches, and exquisite coral reefs. In return for turning the land over to private developers, military officers became key shareholders in a slew of gleaming new tourist developments.

The reason Egypt's military became so involved in non-military activities was because, after peace was signed with Israel in 1975, the military lost much of its raison d'etre, as did its military factories. The problem, though, was how to keep those factories going and employ the hundreds of thousands of young men who would otherwise flood the domestic market?

The answer was the military would also produce for the civilian market. Thus the generals came to preside over 16 enormous factories that turn out not just weapons, but an array of domestic products from dishwashers to heaters, clothing, doors, stationary pharmaceutical products, and microscopes. Most of these products are sold to military personnel through discount military stores, but large amount are also sold commercially.

The military also builds highways, housing developments, hotels, power lines, sewers, bridges, schools, telephone exchanges, often in murky arrangements with civilian companies.

The military are also Egypt's largest farmers, running a vast network of dairy farms, milk processing facilities, cattle feed lots, poultry farms, fish farms. They've plenty left from their huge output to sell to civilians through a sprawling distribution network.

The justification for all this non-military activity is that the military are just naturally more efficient that civilians. Hard not to be "more efficient" when you are able to employ thousands of poorly paid military recruits for labor.

Many civilian businessmen complain that competing with the military is like trying to compete with the Mafia. And upon retiring, top military officers are often rewarded with plum positions running everything from factories and industries to charities.

Whatever the number, Robert Springborg, who has written extensively on Egypt, says officers in the Egyptian military are making "billions and billions and billions" of dollars."

But there's no way to know how efficient or inefficient the military are, nor how much money their vast enterprises make, nor how many millions or billions get skimmed off since the military's operations are off the nation's books. No real published accountings. No oversight. Just as there is no civilian oversight of the entire military budget, and that's the way the current military regime have said they aim to keep things

Of course none of the above is a surprise to U.S. officials who dole out some 1.3 billion dollars a year in military aid to the Egyptian Army, and hope that sum and the neat weapons it provides will keep the army in line. [One of the most detailed studies of the military's non-military activities was done by a U.S. military researcher at Fort Leavenworth.]

A perceptive look into all this comes via a 2008 U.S.diplomatic cable released by WikiLeaks. The writer in the U.S. Embassy in Cairo ticked off the various businesses the military was involved in, and considered how the military might react if Egypt's then president, Hosni Mubarak, were to lose power.

The military would almost certainly go along with a successor, the cable's author wrote, as long as that successor didn't interfere in the military's business arrangements. But, the cable continued, "in a messier succession scenario, it becomes more difficult to predict the military's actions."

Thus, the messier scenario today.

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Follow Barry Lando on Twitter: www.twitter.com/barrylando

Source: http://www.huffingtonpost.com/barry-lando/egyptian-military_b_1114132.html

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Sunday, November 27, 2011

Europe bond yields to keep stocks spellbound (Reuters)

NEW YORK (Reuters) ? U.S. investors came to the Thanksgiving holiday table on Thursday mostly thankful that the week was a short one, or losses could have been larger.

As another round of news and bond auctions from Europe begins next week, traders will watch closely sovereign bond yields that have kept markets on edge.

Yields rose in almost every euro-zone country this week, and Germany failed to find enough bids for a 10-year auction. The S&P 500 reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the euro zone and a visit to Washington from top European Union officials, as well as a meeting of euro-zone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the specter of rising yields, France, Britain, Italy, Belgium and Spain are holding debt sales next week. The direction of bond yields will determine the direction of equity markets.

"Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits and markets become more forgiving and rates come down," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion.

"The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary," he said. "You may continue to see more of the same."

Investors have worried about rising borrowing costs in many euro-zone nations, but Italy, the third-largest euro zone economy, has grabbed most of the focus. On Friday Rome paid a record 6.5 percent to borrow for six months and almost 8 percent to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk-on and -off trades that the euro zone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

POLITICS TO DRIVE THE WEEK

President Barack Obama will meet on Monday with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

"The only thing that will come out of that is speculation," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington.

"It will come down to the U.S. trying to convince European leaders to get something in place to solve this crisis."

Not many hopes are set either on Tuesday's meeting where euro-zone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank President Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

IF EUROPE ALLOWS, DATA WILL BE KEY

Some of the most important U.S. economic monthly data will be released next week, but will it be enough to unlink the stock market's behavior and European yields.

New home sales and the S&P/Case-Shiller home prices index will start the week showing if the housing market continues on life support. Data on confidence among consumers, who flooded U.S. stores on Friday as the holiday shopping season started, will be released on Tuesday.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the U.S. number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek labor data takes over with the private sector employment report from ADP and Challenger's job cuts report, followed Thursday by the weekly jobless claims numbers and topped by Friday's monthly non-farm payrolls report.

"It would be a little bit refreshing to focus on the U.S. data for a change," said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

He said if European headlines allow it, the focus will be in the labor market where "most people are looking for modest improvement."

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy; Editing by Kenneth Barry)

Source: http://us.rd.yahoo.com/dailynews/rss/world/*http%3A//news.yahoo.com/s/nm/20111127/bs_nm/us_usa_stocks_weekahead

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