Sigmund, Carl and Alfred

From an article by Thomas Schmidinger, translated from the German:

…In Syria Hitler got so popular that you could hear the call “bala misyu bala mister, fi s-sama’Allah al-’ard Hitler” (…God in heaven, Hitler on earth) [emp-SC&A].

Sami al-Gundi, one of the founding leaders of the Syrian Ba’th-Party described the athmosphere of the thirties like that: “We were all racists, we admired National Socialism, read its books and the sources of its ideas. [...] Who lived in Damascus at that time can understand the inclination of the Arab people towards Nazism, because it was the power who could become the pioneer of our Arab cause. And who is defeated loves the victorious…”

The irony of Arab world obsession with Nazism (and their projection on Israel) is not lost on most of the civilized world. All the frenzied Arab outrage at the Israeli incursion into Gaza attempts to make the kidnapping of Gilad Shalit the impetus for that invasion. There is no mention of the 1,000 rockets fired into Israel since the Hamas ‘truce.’

It matters not one bit that Hamas came to power in a free election, anymore than it mattered that Adolph Hitler made his way to power by way of free elections. Had the civilized world taken action and eliminated Hitler and his coterie of evil, 50 million people would be alive today.

Barack Obama is a commercial and nothing more. He believes that if repeated often enogh, his ideas will assume some kind of special merit.

Negotiate with Hamas and Iran, that is good foreign policy,  negotiate with Hamas and Iran, that is good foreign policy, negotiate with Hamas and Iran, that is good foreign policy…

Barack Obama would have you believe that negotiating with Iran is like negotiating with Australia. The reality that Iran and Hamas are sponsors of terror and glorify terror are of no matter. According to him, they will see the light, if only we stopped ‘humiliating’ them and started ‘respecting’ them.

Prior to WWII, Hitler broke the Treaty of Versailles, rearmed Germany to the extreme, beat the drums of war and put that nation on a war footing. The Europeans, loathe to fight another war, recalling the horrors of WWI, did everything they could to avoid another conflagration, even turning a blind eye after Hitler waltzed into Czechoslovakia and took the Sudetenland. They believed him when he said ‘that was all he wanted, to correct past injustices suffered by the German ethnic minority.’

Chamberlain, the gold medal champion of European denial and psychopathy, went to Berlin and met with ‘civilized’ Hitler to much newsreel fanfare. He returned home to an adoring crowd, waving a piece of paper ’signed by Herr Hitler.’ There was to be no war, Chamberlain assured a nervous nation and continent. In fact, he soothed European fears and declared, ‘There will be peace in our time.’

European reticence to deal with Adolph Hitler and the Nazi party firmly and definitively was to cost the world fifty million lives.

Neville Chamberlain bent over backwards to appease Adolph Hitler. He was idolized by the left in the UK and the Nazi sympathizers before the war. Despite his ‘good intentions’ and ‘well meaning,’ the former British Prime Minister today is today reviled and thought of as a naive fool. Chamberlain proved that people cannot be talked out of evil. Once the ‘hearts and minds’ have accepted evil, the only way to rid them of that evil is by making it impossible for them to impose that evil on others.

Both the Iranian and Palestinian regimes have sponsored publication of the Protocols of the Elders of Zion and have made anti semitism a cornerstone of their respective societies, manifested in media, education and religious instruction.

Like the Nazis before them, the Iranian and Palestinian regimes will never be considered as equals by us as  as long as hate dominates their political agenda, culture and society. Like Neville Chamberlain before him, Barack Obama will prove once more that appeasement and dressing apes up in tuxedos will prove to be a useless endeavor.

Mr Obama would do well to take a long, hard look at his dance partners.

From the Montreal Gazette:

“The pretense is over: Hezbollah runs Lebanon”

Sandy Tolan is at it again. The Berkeley monument to mediocrity is pretending to be relevant. Bush In Israel, Standing With One Side, published by the Huffington Post, is yet another example of how utterly out of touch Tolan is with the real world.

That should surprise one, of course. Tolan has found the goose that lays the Golden Egg- pious criticism of Israel that has an almost sacred appeal to the leftist Jews. They, like Tolan, believe their cause bestows a kind of divine morality without having to be actually be truly moral or accountable to God. Like Tolan, these progressive Jews (and Christians) are more intent on proving themselves to be righteous and progressive than anything else. They intend on proving their moral superiority without actually being moral (when some Jews and Christians embrace the current Arab ideologies and ignore the institutionalized racism, bigotry and hate, it is painfully clear they care little about the fate of Israelis and Palestinians).

As we have noted,

A real hero is someone who acts out of concern not for him or herself, but rather, for the consequences his or her actions have on others. The fireman, policeman or average Joe goes into a burning building because in doing so, the consequences of those heroic efforts will impact the life of another. The real hero does not see him or herself as noble or as especially different. Rather, they see themselves as doing what needed to be done, no more and no less.

There is another kind of hero, with a very different motivation, best exemplified by the hard leftists. They act- or rather, pretend to act or demand that others act, with little or no concern about how the consequences of their efforts will impact others. The ‘heroism’ they focus on is centered around themselves. The see themselves as better or special.

Tolan’s fancies himself above politics- his critique of George Bush is predicated in his ‘morality’:

Yet when President Bush steps off his plane to help Israel mark its 60th birthday, he will stride firmly into the past of one side. Officials of the Jewish state will sweep the president into their own powerful and compelling narrative: The birth of Israel from the ashes of the Holocaust on May 14, 1948; the invasion of the state, a day later, from Arab armies marching from the north, south, and east; and the loss of fully one percent of the Jewish state’s population, in a fierce defense that evokes Israel’s unofficial motto: Never again.

What the president won’t hear is the Palestinian story. He won’t be told that one side’s “War of Independence” is the other side’s “Nakba,” or Catastrophe. And no one is likely to mention that Israel’s heroic survival was, to the Arabs, a dispossession in which 750,000 Palestinians fled or were driven out of their homes.

Tolan does not mention the truth that the United Nations Partition Plan offered the Palestinians a state of their own, not does he mention the century of racism, bigotry and violence that targeted Jews prior to the establishment of the State of Israel. Nor does he mention the 750,000 refugees from Arab states who were forced not to leave by reason of conflict, but rather by reason of religious intolerance and persecution.

Sandy Tolan might argue that these were two separate events- and in a sense, he’d be right. Nevertheless, a lot can be learned about the Arab and Palestinian character. The persecution and demonization of Jews continues to this day, played out in Arab world media, in schools and often, preached from the pulpit. Tolan bemoans the ‘cruelty’ of the Israeli ‘occupation’ but never addresses the issues that Israel, the EU, the UN and the United States all agree would end the ‘occupation’ tomorrow

• Cessation of violence
• Diplomatic recognition of Israel
• Secure borders

Which of those things are too onerous of a burden for the Palestinians?

In fact, they would still be free to be as racist, bigoted and hateful as they are today. They would still be free to be establish a regime as corrupt and as failed as all the other Arab regimes around them.

Tolan speaks about peace between the Arabs and Israelis as if the players were moral equals, an idea as real as if the flat earthers were the equivalent of the rest of us. There is a better analogy- Tolan would argue that the Nazis were moral equivalents to the rest of us.

We noted in an earlier look at Sandy Tolan that

The only issue that merits criticism of the Israelis is why they have not responded more forcefully.

As we have noted, the fact that the Hamas government was freely elected is irrelevant. Adolph Hitler was elected in a free and democratic election in 1933. Being freely elected is no guarantee that a government will behave in a civilized way. In the case of Hamas, that is assured. They have continued to ratchet up their racism and bigotry, and they proudly proclaim their antipathy toward Jews. They endorse and remain sympathetic to goals of Hitlers National Socialism. They at once deny the Holocaust and in the same breath, praise the Nazi efforts to exterminate Jews, promising to ‘finish what Hitler started.’

The Israelis are under no obligation to fund, facilitate and aid groups that openly admit their wish to destroy them. That Mr Tolan is upset that the Israelis arrested members of a government sworn to destroy them, only indicates Mr Tolan’s detachment from reality…

Adolph Hitler had no track record, when it came to the Jews- only rhetoric. The Arab world has both the track record and rhetoric of hate and destruction. [The Nazis attempted to hide their agenda. The Arabs cannot be bothered- SC&A] If indeed, ‘the world sees the life of an Arab as infinitely less valuable than an Israeli’s,’ while that may be a tragedy, and bad for Palestinian self esteem, it is also an accurate reflection of reality. The Palestinians elected Hamas, the Palestinian Nazi Party. That is no different than the Germans electing Adolph Hitler and the Nazi Party. The self esteem of the German volk suffered because of the choices they made, and rightly so. After the war, Germans had to come to grips with the evil they had wrought.

The Palestinians are suffering because of the choices they made. Nio one forced them- those choices were made freely and independently. As for the Israelis, their collective memory is remarkably clear: There has never been a great movement to save Jews by ‘concerned’ progressives. Tolan mentions not a whit about Arab anti Semitism, preached from the pulpits, racism and bigotry, taught in schools and hate and violence encouraged in Arab media. Why? Because he doesn’t give a damn. If he did, he would say so. In fact, Tolan’s silence on those realities make him an equivalent of Bull Connor, finding justification for his bigotry.

We also noted,

Can anyone imagine, any circumstances under which Israelis would indoctrinate their children to believe that killing was a religious obligation? Can anyone imagine Israelis instructing their children to act as human shields for gunmen? Can anyone imagine Israelis publishing textbooks instructing children to hate and slaughter? Can anyone imagine Israelis devoting media programming to extol the virtues of death and murder?

On a related note, reader VK sent us a note in which she states that

I am having a rather strong reaction to Obama’s accusation that Bush attacked him in his Knesset speech. And I am seeing people like Nancy Pelosi, Joe Biden, and Jamie Rubin jumping on this bandwagon.

My problem is the narcissistic worldview they display. Bush could only be talking about them.

My take is a little different. I see the US president speaking in an international forum, and I see him addressing not only the Israelis, but also residents of the former East Block, secular Turks trying to resist fundamentalist movements in their country, European pacifists who fail to recognize past failures of their own countries in standing against tyrannical forces.

I find it strange that those people who scream loudest about how Bush has damaged our status in the world are now saying that a US policy statement is really only a campaign ploy. Don’t all these intelligent cosmopolitan people realize that many in the world will believe this or at least cynically use it? Don’t they know that CNN is broadcasting all over the world that Bush’s words are all about Obama? And don’t they know that these same people are asking, “What about us? Can we count on America?”

“It is a good thing to be hated by evil people, be it in Iraq or the Palestinian Authority. It is a good thing to be feared by people whose stated aim is to do harm and it is a good thing to reviled by those for whom freedom and democracy pose a threat.” Leftists like Sandy Tolan believe that they can negotiate or buy their way our of any confrontation with evil (’If we just give the Palestinians what they want, everything will be OK’). They cannot accept the truth that evil is defeated by defending and insisting upon a set of values and behaviors from everyone and standing firm.

When nations that are that are led by or are under the influence of tyrants or dictators, attempt to justify those actions, we can rightly assume that justification is false. Tyrants and dictators do not make moral choices, because moral choices can only lead to the demise of the tyranny.

Anyone that comes to the defense of tyrannical regimes and their leaders, have themselves made a conscious choice to defend and stand by what is immoral. They themselves consciously adopt an immoral posture.

Take a good look in the mirror, Sandy. You’ve heard this before.

From City Journal- Is the Criminal Justice System Racist?, by Heather Macdonald

The race industry and its elite enablers take it as self-evident that high black incarceration rates result from discrimination. At a presidential primary debate this Martin Luther King Day, for instance, Senator Barack Obama charged that blacks and whites “are arrested at very different rates, are convicted at very different rates, [and] receive very different sentences . . . for the same crime.” Not to be outdone, Senator Hillary Clinton promptly denounced the “disgrace of a criminal-justice system that incarcerates so many more African-Americans proportionately than whites.”

If a listener didn’t know anything about crime, such charges of disparate treatment might seem plausible. After all, in 2006, blacks were 37.5 percent of all state and federal prisoners, though they’re under 13 percent of the national population. About one in 33 black men was in prison in 2006, compared with one in 205 white men and one in 79 Hispanic men. Eleven percent of all black males between the ages of 20 and 34 are in prison or jail. The dramatic rise in the prison and jail population over the last three decades—to 2.3 million people at the end of 2007 (see box)—has only amplified the racial accusations against the criminal-justice system.

The favorite culprits for high black prison rates include a biased legal system, draconian drug enforcement, and even prison itself. None of these explanations stands up to scrutiny. The black incarceration rate is overwhelmingly a function of black crime. Insisting otherwise only worsens black alienation and further defers a real solution to the black crime problem.

Racial activists usually remain assiduously silent about that problem. But in 2005, the black homicide rate was over seven times higher than that of whites and Hispanics combined, according to the federal Bureau of Justice Statistics. From 1976 to 2005, blacks committed over 52 percent of all murders in America. In 2006, the black arrest rate for most crimes was two to nearly three times blacks’ representation in the population. Blacks constituted 39.3 percent of all violent-crime arrests, including 56.3 percent of all robbery and 34.5 percent of all aggravated-assault arrests, and 29.4 percent of all property-crime arrests.

The advocates acknowledge such crime data only indirectly: by charging bias on the part of the system’s decision makers. As Obama suggested in the Martin Luther King debate, police, prosecutors, and judges treat blacks and whites differently “for the same crime…”

Another criminologist—easily as liberal as Sampson—reached the same conclusion in 1995: “Racial differences in patterns of offending, not racial bias by police and other officials, are the principal reason that such greater proportions of blacks than whites are arrested, prosecuted, convicted and imprisoned,” Michael Tonry wrote in Malign Neglect. (Tonry did go on to impute malign racial motives to drug enforcement, however.) The media’s favorite criminologist, Alfred Blumstein, found in 1993 that blacks were significantly underrepresented in prison for homicide compared with their presence in arrest…

The press almost never mentions the federal methamphetamine-trafficking penalties, which are identical to those for crack: five grams of meth net you a mandatory minimum five-year sentence. In 2006, the 5,391 sentenced federal meth defendants (nearly as many as the crack defendants) were 54 percent white, 39 percent Hispanic, and 2 percent black. But no one calls the federal meth laws anti-Hispanic or anti-white…

Read it all.

Deja Vu, all over again:

This was originally published in 2005 by TeachKidsPeace.org

The Palestinian Authority’s print and broadcast media launched a broad propaganda attack against Israel and the United States on Friday morning-two days before the May 15 anniversary of the founding of Israel, a date the Palestinians mark as “Al-Nakba”: “The Catastrophe.”

Coming less than two weeks before Palestinian leader Mahmoud Abbas is set to visit Washington to seek aid and to proclaim his successes in promoting moderation and democracy, the Palestinian propaganda campaign illustrated how, sometimes, it seems that little has changed in the Palestinian media after the death of Yasser Arafat.

The campaign seemed to peak Friday but over the last two weeks and today it has included the following:

– Systematic accusations from Palestinian officials and the Palestinian media that Israel is planning attacks on Islamic holy sites such as the Al-Aqsa Mosque on Jerusalem’s Temple Mount;

– Charges of Israel using radiation poisoning and new weapons on Palestinian travelers and demonstrators, respectively;

– Harsh portrayals of Israel and the United States in mosque speeches and the cartoons of newspapers-both controlled by the Palestinian Authority (PA); and

– Glorification of dead or escaped Palestinian terrorists.

“Good morning to Jerusalem and to Palestine two days before the 57th anniversary of the Catastrophe of 1948 when 31 of our towns and villages were obliterated and the founding of what is called Israel,” declared Rafat al-Qudra, official Palestinian television’s Friday morning host at 9AM Jerusalem time.

“Good morning to the martyr and to the mother of the martyr,” Al-Qudra declared as a film montage displayed the decorated body of Palestinian terrorist who was given a state funeral.

For three hours, viewers saw almost non-stop anti-Israeli and anti-Jewish incitement, including a long interview with an armed terrorist who, in April 2002, had holed up with several dozen members of the Fatah “Martyrs Brigade” and “Tanzeem” militias in the Church of the Nativity in Bethlehem.

“O listeners,” said the narrator, “after a long siege of 39 days without water and electricity and without food, 39 of our sons inside the Bethelehem church were banished from the West Bank-26 to Gaza and 13 to Europe. Today we are hosting one of the banished, Brother Mu’ayyad al-Ganazra. Welcome, and tell us about your three years passed.”

“For three years we have been banished. and our history is like the history of our people, banished, expelled with the Zionist enemy throwing our people off their land,” said Al-Ganazra, the young Fatah militia member, his hands folded on the belly of his black turtleneck.

Al-Ganazra and other Fatah members used nuns and priests as human shields in 2002, but today he accused Israel of human rights violations because it would not allow him and other “mub’adeen”-banished persons-to return from Gaza to the West Bank.

Some of the men were also accused of physically abusing the Christian worshipers kept hostage in the church, but Israeli forces did not storm the church for fear of irreparably damaging one of Christianity’s holiest places.

As part of a deal negotiated at the time, Israeli soldiers refrained from arresting or killing the terrorists, in return for their leaving the area-either to Gaza or to Europe.

“Remember, at this time Mr. Yasser Arafat was also under siege, and the Occupation was trying to suppress the Intifada and to suppress the Resistance,” the Fatah fighter said using the term “resistance” which many Palestinians use to describe attacks on Israelis.

After the interview, behind the host, a film showing the full map of Israel-Palestine appeared on background of fire as a video images superimposed on the map showed Arabs carrying children and suitcases being replaced by religious Jews wearing skullcaps and beards. “So began the occupation of Palestine,” intoned a narrator.

A cartoon in today’s Al-Ayyam newspaper, which is run by Abbas’s Fatah Party, showed an Israeli soldier with a skull - stuffing a rifle into a baby carriage:

Al-Ayyam, May 13, 2005: Cartoon reads: “In memory of ‘The Catastrophe,’ a ‘New Catastrophe.’

On the weekly show, “Good Morning Jerusalem” (Arabic: Sabah al-Kheir Ya al-Quds ) telephone callers consistently berated Jews in general and the “Jewish enemy” as well as the “American-Israeli conspiracy” against the Arabs, while the show’s host thanked them.

After the show was over, Palestinian television turned to Sheikh Ibrahim Mudeiris, the white robed cleric who led the broadcast prayers at the Sheikh Zayid Sultan al-Nahayyan Mosque in Gaza.

Sheikh Mudeiris, who is a noted supporter of Osama Bin-Laden Al-Qaeda organization, did not waste time and from the first word of his sermon attacked Jews over the centuries for their “immorality” and “corruption.”

In a speech dedicated to “The Catastrophe,” Sheikh Mudeiris mixed a traditional Muslim phrase with today’s politics.

“Praise be to Allah whom we to praise even for what is hateful, and [praise be to Him] for having made heroes of us to withstand what the Jews have done to us,” declared the young rotund, bearded cleric as he clutched his gold-trimmed white robe.

He unleashed scathing charges against “the Jews who the Prophet [Muhammad] warned had killed their prophets, distorted the teachings of their Torah and corrupted their way of life.”

Most Jews were treacherous and unreliable, Sheikh Mudeiris said, and the Prophet Muhammad and his follower Abu-Bakr were correct in fighting them and evicting them first from Muhammad’s base city of Medina and then from ancient Arabia.

“Israel is a cancer among the Islamic peoples,” the sheikh shouted at the crowd kneeling at his feet.

“I don’t ask you to read the Quran [for this]. All you have to do is read history. Ask the British what they did with their Jews. They were thrown out for 300 years. Ask the French what they did with their Jews.”

The young charismatic cleric also accused the Jews of idolatry, and of “corrupting their morality.” In previous speeches in recent weeks, he and other mosque speakers on Palestinian television and radio have said that there is an Israeli-American plot against the Arab states, and called for holy war against both Israel and America.

Such grandiose charges were symbolized in today’s cartoon in Al-Hayat Al-Jadeeda, a Fatah newspaper completely controlled and funded by the Abbas regime. ( Al-Hayat Al-Jadeeda, May 13, 2005)

The cartoon depicts the Jews, holding an Israeli flag, gaining bloody control over the entire Islamic world from Indonesia to Morocco and the Atlantic Ocean.

Sheikh Mudeiris and other mosque speakers who are paid by the Abbas regime have also promoted the idea that the Israeli government and “Jewish extremists” are plotting together to destroy the silver-domed Al-Aqsa mosque and the golden-tipped Dome of the Rock shrine, even though there has been no evidence of this.

The “independent” daily newspaper Al-Quds, which gets sizable subsidies from the Abbas regime, today and yesterday ran headlines making fun of America’s fears of terrorism and assassination as well as gloating over America’s casualties in Iraq.

Today’s cartoon showed America as a bloodied Viking on the turret of a tank in Iraq, while yesterday’s cartoon showed a sweating White House with an innocent advertising plane in over-flight.

The intense anti-Israel campaign of the Abbas regime comes at a time when Abbas himself, according to Palestinian public opinion polls and recent elections, has not translated his succession of Arafat into public
acceptance.

Abbas’s Fatah Party squeaked out a statistical victory in local elections earlier this month, and it is considering asking to delay the national elections in July.

Members of the Fatah militias as well as HAMAS and Jihad terrorists have openly poked fun at Abbas’s statements-usually made in foreign appearances-that he will disarm militia members.

At the same time, however, when speaking in Arabic or in Arab press interviews, Abbas and his top aides have made it clear that they will not “seize weapons” from anyone involved in “resistance,” but only from
criminals.

“We distinguish between the fighter and the killer, between the resister and the criminal,” asserted Deputy Prime Minister Nabil Sha’ath in remarks shown on Palestinian television earlier this month.

More:

The Roots of Palestinian Indoctrination

Hamas Hits Israeli School

Terrorism for Toddlers

Protect the Children of Gaza

The Creation of a Terrorist

Who are the Heroes?

Forcing Children to Fight

Kindergarten of Hate

Is Palestinian Violence a “Disease”?

From Investors Insight, one of the most important essays on the global economy you will read this year.

There is nothing so disastrous as a rational investment policy in an irrational world.”

John Maynard Keynes

You just know that something is astray when Afghan poppy growers begin to switch from opium to wheat. According to the Independent newspaper here in the UK, that’s exactly what is now happening. I have no desire to enter into a pound for pound risk/reward analysis of producing wheat versus opium. However, the consequences of the rapid rise in energy and agricultural commodity prices are far reaching and perhaps not as well understood as they should be. That is the content of this month’s letter.

The Silent Tsunami

My story begins with Al Gore. While most of us lulled ourselves into the belief that he was onto something when he tried to convince us that global warming (or climate change, as I prefer to call it) was the most formidable challenge facing this planet, a silent tsunami¹, also known as the global food crisis, began to develop and is now threatening to undermine global political and economic stability, the latter of which has been key to the benign financial markets we have all benefited from in recent years.

According to the World Bank, just over 1 billion people live on one dollar or less per day. People in the poorest countries in the world spend 80% of their income on food. So when you and I have hardly noticed that the bread we pick up from the local bakery has doubled in price over the past year, it is because only 10-15% of our budget is spent on food items². In many emerging economies the number is much higher. Chinese consumers spend 28% of their income on food. In India it is 33%. If you want to know how much it is in your country, go to:

http://www.ers.usda.gov/briefing/cpifoodandexpenditures/data/2006table97.htm.

There are three food staples in the world today which dwarf all other food ingredients in terms of importance. They are (in alphabetical order) corn, rice and wheat. As you can see from chart 1 below, they have all experienced rapid price appreciation since last summer. What is it that has driven this price explosion and what does it mean to financial markets? As with most things in life, there is no simple explanation; a number of factors have conspired to create a situation which is exceptional but also destabilising and hence dangerous.

It Is The Bio-Fuel Policy Stupid!

The explanation given by most commentators is the bio-fuel policy currently being pursued by the Bush administration in Washington. The policy is driven by a desire to unlock the United States from its rising dependence on imported crude oil. The problem, as Bush and his government have been slow to recognise, is the stupidity of the policy in its current form. Let’s back that claim up with some hard facts.

In the United States, corn (better known as maize over there) is the primary ingredient in ethanol production although wheat and soybeans are also used. According to a recent UN report, it takes 232 kg of corn to fill an average 50 litre car tank with ethanol - enough corn to feed a child for an entire year. It is estimated that almost 20% of total US corn production will go towards ethanol this year and the number is set to rise to 45% by 2015³.

The problem with corn is that it is low on carbon hydrates, which is where the energy comes from. Instead, American ethanol producers rely heavily on fertilisers with the energy being extracted from the nitrogen in the fertiliser. This is an inefficient and very costly approach - in particular in an environment of rising energy prices because crude oil and/or natural gas are major ingredients in fertiliser production. 33,000 cubic feet of natural gas are required to produce just 1 ton of ammonia!

So what does all this mean? According to estimates from Goldman Sachs, the cost of ethanol from corn is now over $80 per barrel, it is about $145 from wheat and over $230 from soybeans. Other countries recognised this problem a long time ago and use crops with higher carbon hydrate content. In the Philippines they use coconut oil and the Brazilians use sugar cane. Goldman reckons that the cost of one barrel of ethanol based on sugar cane is about $35. So why not import sugar cane from Brazil instead of using corn? One simple answer: Brazilian farmers do not vote at American elections. Idaho farmers do.

Are Investors To Blame?

There is no question that the US bio-fuel policy which, by the way, is now being copied in other parts of the world including the EU, has to take its share of the blame. But it is by no means the only reason for the food crisis. The next culprit on my list is our very own industry - investors of all kinds. In recent years there has been rising demand for commodity-linked investment products from investors all over the world. Pension funds, hedge funds, mutual funds and private investors have all allocated more and more to commodities and, in recent months, demand growth has been explosive, as is evident from chart 2 below. It is estimated that the aggregate value of commodity-linked index funds now exceeds $200 billion, a very significant number in a not very large market.

For those of you following the market for exchange traded funds (ETF), you will have noticed that not a day has passed in recent months without yet another new commodity ETF being launched. Since the issuers of these ETFs do not want to take any risk on their books, all these ETFs are hedged - typically through commodity futures. In other words, every time you buy a commodity ETF, you contribute to the continued rise of commodity prices and hence inflation.

For that very reason, it is possible - but not a given - that much of the recent rise in commodity prices is based more on market technicalities than on fundamentals. If so, this could be the next bubble waiting to burst. We continue to hear stories about institutional fund managers being overloaded with commodity futures but have found limited hard evidence so far.

Water Shortages Are A Problem

Water is next on my list. Australia - one of the world’s largest grain producers - suffered badly last year due to severe drought with its wheat harvest being only 50% of the prior year’s output. However, water, or rather lack thereof, has played havoc in more ways than one. In China, water depletion is a serious problem and the problem is exacerbated by top soil erosion and poor fertility. China has an estimated annual water shortfall of 40 billion cubic metres. Closing that gap through artificial means (desalination, etc.) would consume the equivalent of 3% of the world’s oil output.

Until recently China has been one of the world’s major grain exporters. Those days are now over. By 2010 China expects to import the equivalent of 40% of US corn exports. According to estimates from UBS, China’s foreign currency reserves, which are the largest in the world, could be slashed in half over the next few years if grain prices were to double again from current levels. As an aside, China has recently decided to abandon its bio-fuel programme. The reasons? A lack of water and cost inefficiencies.

In Saudi Arabia, a country of 28 million people, water depletion is a serious problem. Estimated recoverable water reserves are now less than 10 years and falling rapidly. For that reason, the Saudis have decided to wind down their domestic agricultural industry. Historically, the Saudis have been self sufficient on food. They now say that they will import 100% of their food requirements by 2016.

Have We Been Complacent?

Number 4 on my list is complacency. Al Gore (yes, him again!) seduced us all into focusing on the climate. Many a government agency around the world took its eyes off the ball and allowed food stocks to deplete. US wheat inventories, for example, are now at the lowest level since 1947/48 when the US population was only half the size it is today.

Similar problems have caused panic buying in the rice market in recent weeks where stocks are at the lowest levels since 1976. 3 billion people in Asia and Africa rely on rice as their primary food staple. Governments in India, Thailand, Vietnam, Argentina, Cambodia, China and Egypt have all imposed export controls in order to secure domestic needs. The World Bank is so concerned about the situation that it now predicts food riots in more than 30 countries around the world.

Productivity Levels Are Falling

Number 5 and 6 on my list are closely related. The total amount of arable land in the world is diminishing, primarily as a result of urbanisation. China alone has lost 3 million hectares of rice land to concrete in the past 10 years. In order to compensate for the reduced acreage, higher productivity levels are required. But higher yields require increased use of fertilisers which is not an option available to everyone given the price of oil. In some parts of the world, for example in Africa, there is now evidence of farmers planting less than in prior years as they cannot afford fertilisers. Falling yields are not a new phenomenon, though, as you can see from chart 3.

In one of the largest grain producing areas of the world - the former Soviet Union - the total acreage planted has dropped 12% since the iron curtain came down. The 3 largest producers in the area all suffer not only from reduced acreage but also from low yields compared to western standards. In Kazakhstan, grain yields are 1.1 tonnes per hectare, in Russia they are 1.8 and in the Ukraine 2.4. US grain yields, by comparison, are 6.4 tonnes per hectare⁴. The good news is that there is plenty of land available in places like Russia and Kazakhstan. The bad news? Experience suggests that it will take about 10 years to turn non-farm land into fertile farm land.

The Meat Culture Prevails

The final factor has to do with changing eating habits. This phenomenon has received its fair share of the blame in the media in recent months, but I actually think this is more of a concern for the future than a reason why food prices have exploded in recent months. Eating habits do not change overnight. At the macro level, a changing diet takes years to materialise. Having said that, there is clear evidence that Asia’s growing middle classes are switching to meat based diets. If the rest of Asia were to follow Japan’s example, the protein intake across Asia will explode over the next couple of decades. The Japanese are consuming almost 10 times as much protein as they did 50 years ago. Why is that a problem? Because it takes over 3 kg of corn to produce 1 kg of pork and over 8 kg of corn to produce just 1 kg of beef!

So What Does It All Mean?

There are very good reasons to believe that high food prices will stay with us for quite some time. Yes, there may be some elements of speculation behind the recent explosion in grain prices, maybe even hints of a bubble, but underlying supply and demand factors are such that we’d better get used to lofty food prices for years to come. That has implications for financial markets left right and centre (finally I get to what this actually means!).

The analysts at Goldman Sachs have calculated the effect rising food prices have had on overall consumer prices (see table 1). The conclusion is inevitable. Whereas in most OECD countries the feedback process between food inflation and non-food inflation is modest, in virtually all emerging economies the feedback is significant. Secondly, non-food inflation is most affected by high food inflation in countries with high inflation rates such as Russia, Indonesia, Argentina and Mexico (see chart 4).

This is an important observation because the investment community is almost universally in favour of emerging markets these days. Rarely have I experienced a period where the bulls have been more plentiful and the bears fewer and farther between. Most investors seem to believe that headline inflation will gradually come back to core inflation levels over the next year or so. Few investors seem to think the unthinkable - that core inflation will gradually rise to headline levels.

Asia May Pay A High Price

Even fewer seem to realise that if oil prices and agricultural prices continue to run amok, the Asian miracle story, upon which so many investors have pinned their hopes for the next few years, may, in fact, turn into a nightmare. The reason is simple enough. Asian countries are large importers of both oil and food staples. Very large!

To give you an idea of the appetite for oil in Asia, take a look at chart 5. As you can see, over 50% of the incremental global demand for oil over the past few years has come from Asia - almost 35% from China alone. In fact, over the last 5 years, China’s energy consumption has grown 5% faster than its GDP per year. Yes - per year!

It is now projected that China will overtake the US as the world’s largest energy consumer by 2010 despite its GDP being only 1/5 the size of the US GDP. No wonder the Chinese are running around in obscure parts of the world attempting to secure long term crude oil deliveries.

Based on the current crude oil price of $112, and an estimated average price of $64 over the course of 2007, I have calculated the net gains and losses to oil exporters and importers (see table 2). Not surprisingly, the Middle Eastern producers stand to gain the most - $333 billion of incremental revenues - but African producers and Russia also stand to benefit significantly. On the import side, Asia is paying the highest price. The current level of crude oil prices should add about $278 billion to the bill over and above what Asian countries paid for their oil imports last year.

Rising agricultural goods prices, although significant, are not having the same aggregate wealth effect as rising oil prices. In table 3, I have estimated the added cost of rising food prices from importing the three main food staples. Again you will see that rising prices are hitting Asia the hardest. Remember table 3 only looks at the import of raw materials. The effect from rising prices on processed foods is not included.

Neither does table 3 do any justice to the damage done at the micro level. Of the 3 billion people who rely on rice as their primary source of food, over 2 billion live on $2 or less per day. The recent price jump spells disaster for these people and could potentially cause massive economic dislocation throughout Asia. Riots are now a real possibility in many of these countries.

As far as the investment story goes, here is the problem. The prevailing view today is that the western world is yesterday’s story and that the best way to ensure continued high returns in your portfolio is to focus on emerging markets - in particular Asia. The argument runs approximately as follows:

The Consensus View

The OECD area (the old world) is plagued by a rapidly ageing population with all the negatives that follow - rising health care costs being the most important. Many OECD countries also have unfunded pension liabilities and large budget deficits, raising serious questions about whether the 21^st century society can afford to maintain the retirement system as we know it today. Some even argue that structures such as the Euro are doomed because of dramatic discrepancies in performance within the Euro zone. Now consider the US dollar. The greenback is probably the most disliked currency in the world today (well, not taking the Zimbabwe dollar into consideration). If you buy these arguments it is no wonder that many investors shy away from the more established markets.

On the other hand, emerging markets - and Asia in particular - beam with opportunities. The population in most emerging market countries is still young, savings rates are high and the optimism is there for everyone to see. In short, it is exceedingly hard to find anyone who wouldn’t agree that Asia offers the best growth prospects going forward. So overwhelming is this view that it is virtually impossible to find a single brokerage house, institutional investor, commentator, punter, etc. who doesn’t advocate an overweight of Asian shares in equity portfolios.

Do Not Assume One-Way Traffic

While I agree that emerging markets offer better growth prospects than OECD countries, I disagree that it is going to be one-way traffic. As demonstrated above, rising commodity prices will hit Asia much harder than any other region in the world as it is in fact the only region in the world today which is a net importer of both crude oil and food staples.

In table 4 I have listed the largest holders of foreign exchange reserves in the world today. As you can see the list is dominated by Asian countries. All those investors who buy into the Asian growth story pin their argument either directly or indirectly on the size of these reserves. Growth requires investments; however, due to the high savings rates across Asia, and hence the plentiful reserves, the money is there to finance those investments without the countries becoming net debtors. What the argument does not take into consideration is that, at least in some countries, those reserves will be increasingly going towards paying for the rising cost of oil and food imports.

The ‘haves’ And ‘have Nots’

Instead I believe investors will increasingly differentiate between the ‘haves’ and ‘have nots’. And the ‘haves’ are those countries which control the world’s resources. In fact, few countries are net exporters of both oil and foods on a large scale. Come to think about it, it is less than a handful. And no Asian country is on the list. So who is on it? In the old world only one - Canada. In the grey zone (emerging economies but not necessarily young and dynamic populations) perhaps two - Russia and Kazakhstan. And amongst full blooded emerging economies? No one today, although Brazil has the potential to turn itself into a winner and so does Africa, if it can sort itself out.

All this is not to say that investing in Asia is doomed to fail. There are many good reasons why you want to invest there. However, the invest case is not as straight forward as it appears at first glance, and throwing in a bit of Africa, Brazil and/or Russia may not be a bad idea.

An Afterthought

For over 30 years, the world has had to suffer the consequences of OPEC - an organisation as keen to enrich its members as we in the Western world are hooked on its main produce - crude oil. Has pay-back time finally arrived? Should we be tempted to create OGEC - the Organisation of Grain Exporting Countries - with the objective of ensuring overall resource stability, i.e. food will only be exported to oil producing countries provided they deliver oil to us at a reasonable price?

The largest wheat exporters today are (in order of rank) the US, Canada, Russia, the EU, Argentina, Kazakhstan and Australia. Most of these countries happen to be net importers of oil. Is it unreasonable to apply a ‘tit for tat’ approach? My heart (as does my bank manager) tells me yes but my gut feel says no. The world has always been a better place when government interference has been kept at a minimum. The problem we face in this particular situation, though, is that not everyone plays by the same rules. If that could be fixed, the world would indeed be a better place.

[1] A term borrowed with thanks from The Economist newspaper.

[2] Our food statistics come from the US Department of Agriculture and indicate that consumers in countries such as the UK and the US spend less of their income on food than consumers in other countries. This is due to the fact that take-aways and restaurant visits are not included in the USDA numbers. Adjusted for that, almost all OECD countries spend 10-15% of household expenditures on food.

[3] Source: The Daily Telegraph

[4] Source: The Daily Telegraph

Darwin on wives

The University of Cambridge has put online the complete works of Charles Darwin. Not just On The Origin of Species but also his personal papers, his views on matrimony as well as his views on evolution.

Darwin, scientific rationalist and child of the Enlightenment, set out in two opposing columns the pros and cons of marriage. A wife would provide “children, companionship, the charms of music and female chit-chat”. She would be “an object to be beloved and played with”, though he did not seem to attach great weight to this, conceding only that a wife was in this respect “better than a dog anyhow”. But Darwin also noted the disadvantages. The absence of the conversation of clever men at clubs, the prospect of “being forced to visit relatives, and to bend in every trifle”. Above all, the loss of time.

Nowhere does Darwin opine on mothers-in-law.

Naturally, the article ends with a critique of the Iraq war. Naturally.