INSIGHTS

On February 22, 2011

A Full Plate of Politics, an Empty Plate of Food

---

Events around the world are culminating into a very exciting and explosive fireworks display, in our opinion. The political uprising of very vulnerable and susceptible emerging markets has been brewing for some time. Many can cite the political oppression present for years or the dire economic strains that a global recession causes as the reasons for the current political land mines erupting around the world. However, one reason that is more powerful than any war over energy or political discontentment is that of hunger. The price of food is rising quickly enough that policies and economic adjustments are not able to offset the strains of rising basic provisions. It appears to us that the hierarchy of importance to political stability runs from clean water, affordable food relative to income and energy to fuel economic growth.

We witnessed the impact oil had on the geo political environment when it hit $145 a barrel a couple of years ago. We see spikes presently that remind us of those days, though it appears to us not to have the strength to hit all time highs in the near term. We also saw a hint of political instability with regard to food some three years ago when rice rose nearly 200% in very short order. As we mentioned before about the importance of water, food and oil, one should take note of what is happening in other commodities. Gold is up nearly 16% and oil is up nearly 30% since July of 2010.

Wheat and Corn

Source: CBT, Bloomberg. See Charts/Graphs Disclosure.

To understand the nature of this impact on emerging markets versus the developed countries, one needs to look at the efficiency with which economies can produce their own goods, store and transfer these basic necessities. In the more developed worlds we enter into debates about cost of living adjustments, tax breaks or increases and halting the potential inflationary spiral versus actual uprisings. Currently, we are seeing fractures in this typical modern response with backlash seen in Wisconsin and other places.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the disclosures webpage for additional risk information. For additional commentary or financial resources, please visit www.aamlive.com/blog.