How to safely play the Tunisian crisis

On the 14th of January, 2011 President Zine El Abidine Ben Ali fled Tunisia amidst violent protests.

This scene has played out across the world more times than I care to mention, and I would like to point out a couple of things.

Firstly, it is and always will be astounding to me the level of abuse that a populace can put up with. It seems to be almost limitless. People will routinely tolerate aggression, poor housing, lack of education, lack of free speech, lack of religious freedom and a whole host of other lacks which contribute to making life unpleasant.

Tunisia Ablaze

In that bastion of capitalism, the United States, the citizenry tolerates everything from racism to refusing to keep score at children’s sporting events. I know, CRAZY!

BUT, the one thing that I have routinely found will get people everywhere out into the streets baying for blood is a lack of affordable food… staple items like cooking oil, rice, wheat, flour. It is right at the base of Maslow’s hierarchy of needs, and while it shares its place with shelter and clothing, I would suggest that it is even more important.  In a country such as Tunisia, where the climate is rather mild, lying naked under a bridge in Tunis will be uncomfortable, but unlikely to kill you. Try doing that in Quebec in winter. Food is a necessity no matter how you dice it.

Food riots began in Algeria and spread to Tunisia over the last month.  Much like the food riots of 2008 which toppled the Haitian government, this has been the straw that broke the proverbial camel’s back and toppled the Tunisian government. It is no surprise that those experiencing the most pain from rising food prices will be those in countries that have higher levels of government intervention. This is why you will find people starving in countries such as the Democratic Republic of the Congo (DRC), which is arguably the most fertile country on the planet, while you will struggle to find such desperately hungry people in Singapore, which incidentally grows almost zero food.

How to play ‘starvation’ as an investment theme

Look, I told you I’m not politically correct here, and I certainly do not advocate starvation, homelessness or any other form of “lack”, which is why I’m a capitalist.

I’m not playing Tunisia specifically. Buying a collapse can be extremely profitable, however buying into war zones, or potential war zones, is usually not exactly a good idea.  The time to buy in a war zone is after the conflict has matured and is winding down.  What is playing out now in Tunisia is a precursor for strife across the middle east, caused by rising energy prices and rising food prices which will fuel tribal tensions throughout the region. Both of these essential commodities face supply/demand imbalances, though these are being corrected. The cure for high prices is of course high prices.

You can invest in specific companies in the food and energy sector; or, a one-stop easy step is to buy MOO or DBA, both of which you can purchase from your couch and trade on the US exchange as ETF’s but I think most of the rally is probably over. There may be some juice left in the apple but the risk/reward is no longer all that favourable.

I tend to take a bit more risk in my portfolio, and prefer to buy options on futures contracts as far out as I can get them.  I’ve been doing this for some time since late 2008 when all of these soft commodities got beaten like a red headed stepchild. Wheat, corn, rice… they all got smashed. Again I think we’re at the tail end of the growth now and though the media pundits are all super bullish now I see this as yet another reason to be cautious.

While I’ll be taking profits I expect there’ll be no shortage of internet “gurus” screaming at you from your inbox to order a box of heirloom seeds, find yourself a plot of dirt, grab your tinfoil hat, .22 and a short-wave radio, because things are gonna get ugly! Oh, and don’t forget the dog, you may need to eat him later.

Or you can see it for what it probably is. The tail end of what has been a wonderful run.



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