December 18, 2005

04:40:09 am Thursday, December 15, 2005 - Cairo, Egypt - Sunny, Mid 60s & Casablanca, Morocco.  

On our last day in Egypt, we toured sites in Cairo: mosques of Mohammed Ali (ruler of Egypt 1805-1848) and Sultan Hassan, Khalili Bazaar, and panorama of the 1973 war with Israel. The latter was not part of our standard Abercrombie itinerary but something we requested be added when we drove by it earlier in the week. It was a propaganda exhibit to extol the heroics of the Egyptian Army and the commander of the air force, Hosni Mubarak, now president. The panorama left out some key details, such Egypt losing the war! By linking the war to a later negotiation of a peace treaty between Israel and Egypt--where Israel relinquished control of the Sinai Peninsula in exchange for Egypt recognizing its right to exist--the panorama made it seem that Egypt's invasion of the Sinai in 1973 was successful. Never mind that the invasion was quickly repelled in a few weeks.

I read where the Egyptian government guarantees all college graduates a job upon graduation. The result is educated people employed in jobs they are overqualified for, with many times more people than needed assigned to certain roles. Overemployment like this pervades Egyptian society. Nevertheless, employees ignore certain basic tasks, such as keeping public facilities clean, preferring to sit around chatting, smoking, and drinking tea.

We flew Egypt Air on the 5 1/2 hour evening flight from Cairo to Casablanca. We stayed one night at the Le Royal Mansour Meridien in Casablanca because there was no late connecting flight to Marrakech, our ultimate destination.

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04:32:24 am Wednesday, December 14, 2005 - Aswan and Cairo, Egypt - Hazy, High 70s. Includes comments on the US, UK, and New Zealand.  

Flew on Egypt Air from Aswan to Cairo. Flight delayed about two hours due to haze in Cairo. In Cairo, we toured the Egyptian Museum, home to the full King Tut exhibit and other Egyptian artifacts spanning thousands of years. Spent one night at Four Seasons Nile Plaza, which opened about a year ago and is fabulous. We were upgraded to a suite, which put us in a ridiculously large set of rooms, the largest we've had since our night at Burj al-Arab. Deanna stayed up to 3AM shopping for Christmas presents over the web. We've gotten numerous emails from people surprised that we (and this year that was 100% Deanna) were able to send out Christmas cards. That's the beauty of the internet. We did not buy a single postage stamp, lick an envelope, or print a single card. Yet we were able to custom design a card with multiple pictures from this trip, and send off dozens of cards to people in numerous countries. Go to shutterfly.com and you can probably still get your cards in people's hands before Christmas.

Now for a look at interest and exchange rates (normal readers may tune out here). The US dollar has had a couple of tough days, with the price of a euro increasing to $1.20 today. The dollar is weakening on the thought that the Fed is nearly done raising rates (4.25% after yesterday's increase) while the European Central Bank is just getting started with their increase to 2.25% a few weeks ago (their first increase in five years). I think the Fed is fairly certain to raise to 4.50% at the end of January, but a further increase to 4.75% at the meeting after that in March is only a 50/50 proposition at this point, in my opinion. If US economic growth slows next substantially next year (it is likely to slow, the question is by how much), then rate cuts at some point are possible, more likely in the second half than the first. Nevertheless, the Fed would be less likely to cut rates if inflation does not decrease, and oil prices will influence that. I can't predict oil prices, but my best guess is that they will remain in a $50-$60 range, but neither $30 nor $100 would stun me. My best guess is that Fed rates will end 2006 around where they are now, at 4.25%. That is, the Fed may follow one or two increases with one or two decreases. I expect the present two percentage point gap between the US and Europe to narrow to one percentage point as Europe ends 2006 around 3.25%, intermittently raising rates throughout the year as (and if) the EMU country's economies gradually improve (it is not certain that economic growth in the EMU will improve, though). I'm neutral on the dollar/euro exchange rate now. The dollar remains undervalued to the euro on a purchasing power basis but interest rate parity says the euro is due for a boost. The euro has greater political risk as the strains revealed in Europe in 2005 are not going away any time soon. On the other hand, the dollar has a greater issue with the US trade deficit possibly leading to a dollar decline. Thus, things could go either way. In any event, I no longer have the conviction of my March 20 call that the dollar was due to rise against the euro, so I will close out this prediction with a 12% gain (the dollar rose from 74.6 euro cents to 83.3 euro cents as the euro fell from $1.34 to 1.20). I am not saying that I now expect the dollar to fall; rather, I just don't feel as strongly that it must rise against the euro. My best guess is that the euro will range from $1.15 - $1.25 next year, but then I wouldn't be surprised to see it down to $1 or up over $1.35. About the only thing we can be sure of is now that I've closed out my prediction, the dollar will likely be very strong over the next week, hitting new highs for the year, and making my timing look foolish!

The yen also has also moved sharply up against the dollar this week after months of sliding. It is now 117, up from 121. Japan's central bank has not yet increased rates from near 0, but it sure looks like they will next year.

I still think the dollar is still in good shape versus the British pound. The pound began the year earning 2.50 percentage points more than a dollar (4.75% versus 2.25%) but now the rates have converged (4.50% versus 4.25%). With the UK economy looking weak heading into 2006, I expect it US rates to exceed the UK at some point in the first half. The UK also remains silly expensive on a purchasing power basis. Fair value in terms of purchasing power is probably for the pound to fall to $1.25, a 29% drop from $1.77 presently. I don't think we will see anywhere near that drop, but I do think the $1.40-$1.50 range that the pound traded in for much of the 1990s would be a reasonable target over the next couple of years based on purchasing power if Britain's economy stays weak, and if the US economy remains somewhat stronger than the UK.

Finally, I note that New Zealand's central bank raised rates to 7.25% last week. I continue to think--as I have since March--that New Zealand's economy is so good right now, that things there are far more likely to get worse than to improve or even stay where they are. Their currency is down some since I first said this, but their stock market is not. So I will keep saying it.

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December 14, 2005

10:10:04 am Tuesday, December 13, 2005 - Aswan and Abu Simbel, Egypt - Sunny, Mid- to High 80s.  

We left the boat for good in Aswan at 7:30 AM and took a 40-minute flight to Abu Simbel less than 200 miles away. There are two large temples of Ramses II there. As impressive as the temples themselves, in our opinion, is that they were moved in their entirety in the 1980s after the Aswan High Dam was completed. Picture cutting Mt. Rushmore into over a thousand stone blocks, moving them a few hundred meters, and then reassembling them so well that you could not tell the monument was not in its original location. You can see where the stones were cut if you look for it, but you would never guess that the entire temple had been moved. The Temple of Philae that we saw yesterday was similarly moved. The flight back put is in Aswan by mid-afternoon and we stayed one night at the Old Cataract Hotel, a British colonial era hotel. I think if you are to see it, Abu Simbel is best placed at the beginning of your trip to Egypt. It's impressive, but after several days of impressive sites, I'm not sure it is incrementally impressive enough to take three-quarters of a day with travel to see it.

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10:09:31 am Monday, December 12, 2005 - Nile River Cruise ending in Aswan, Egypt - Sunny, Mid- to High 80s.  

Our final day of cruising down the Nile. We had two more temple visits. We arrived at the destination, Aswan, around lunch time. We visited Kom Ombo temple in the morning and three sites around Aswan after lunch (unfinished obelisk, Aswan High Dam, and Temple of Philae). At the first site, our traveling group of the International Red Cross was pressed into service. A German woman from another group tripped on the steps and sprained her ankle. The South African doctor from our group was on the scene first and tended to her. After determining that she had not suffered any serious injury, he had done all that he could do, when the Saudi Arabian doctor happened upon the scene. He spoke German, having studied and practiced there, and so his opinion was immediately sought out. He came to the same conclusion that there was no serious injury, but somehow this determination delivered in the patient's native tongue was more reassuring, and she got up and hobbled back to her bus. The doctor's spouse, the nurse from Taiwan, stood by ready to assist if needed.

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10:08:24 am Sunday, December 11, 2005 - Nile River Cruise, Egypt - Sunny, Mid- to High 80s.  

After a full day yesterday, today was a more leisurely day with only two stops: Edfu Temple and Kom Ombo Temple. These temples were built in the Greco-Roman period (beginning 323 BC, with the Romans morphing into the Byzantines at the end of the third century AD), unlike everything we that saw yesterday that was built by the pharaohs. The pharaohs ruled from around 3200 BC to 341 BC, although most of the remains they left were built prior to 1000 BC. Their native rule was followed by outside rule by the Persians, Greeks, Romans, Byzantines (Eastern Roman Empire), Arabs, Mamelukes, Ottomans, and British, before Egypt finally returned to native rule in the 20th Century. Formal independence came in 1922, with the present republic established in 1953 after King Farouk abdicated. Anyway, while the Greco-Roman temples have some differences to the pharaonic temples, they are more similar than different to what we saw yesterday. The Greeks and the Romans both found it easier to rule if they observed local customs.

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