Crisis and Opportunity –
How to Play Both Sides of the Same Coin

Today’s comment is by Mike Burnick, Senior Editor, Global Markets Analyst and editor of Market Shock Trader.

Dear A-Letter Reader,

The Economist magazine calls it “The Silent Tsunami.” The International Monetary Fund and World Bank says it’s the biggest threat to emerging markets – a greater risk than even the ongoing credit crunch.

What are they all talking about? The global food crisis. Specifically, how this crisis has impacted soaring inflation rates and potentially slower growth around the world – particularly in developing countries.

As my colleague Eric Roseman pointed out, over the past year wheat prices have tripled and soybeans nearly doubled. Just since January alone, rice prices have sky-rocketed 141%.

That’s potentially devastating to the three billion plus in emerging Asia who consume rice more than any other food item.

Food “Hoarding,” Export Restrictions, Only Make Matters Worse

Many countries are responding to this food crisis by hoarding food supplies. The World Bank is currently monitoring 48 nations that have imposed price controls or export restrictions to keep more grain at home. The inevitable consequence is that global supplies will decrease even faster.

The price of one variety of wheat shot up 25% in a single day when the news broke that several large wheat producing countries – including Russia and Kazakhstan – had imposed export restrictions. This will only make an already dire situation worse. In fact, all they’re doing is driving grain prices higher still. With rice prices recently trading above US$1,000 per ton for the first time ever, rice exporters including Vietnam, India and China have imposed export restrictions.

In other words, expect even higher rice prices ahead, thanks to these misguided protectionist policies.

There’s no end in sight either. Eric sees “powerful supply-side fundamentals pushing prices even higher over the next several years, so there's no reason why grain prices can't double or triple from current levels.”

Is There a Silver Lining to High Rice Prices?

Inside every dark storm cloud, you can usually find a silver lining. There’s always a flipside to every coin. This global food crisis is no different. That’s because amid every “crisis” there’s usually and opportunity to profit too…if you look hard enough.

Amid the global rice crisis, the opportunity lies in the world’s leading exporter of rice: Thailand.

Thailand is a dynamic emerging market that has seen rapid growth over the past dozen years, but political turmoil in 2006 temporarily paused Thailand’s bull market. A military coup ousted the elected government, throwing Thailand’s economy into chaos for about 18 months.

In March however, the Thai military stepped aside and a newly elected government was installed in Bangkok – a government that’s pursuing pro-growth policies. Perhaps in anticipation of these events, Thailand’s economy is now beginning to enjoy robust growth again. employment is on the rise and along with it consumption is expanding at a healthy clip.

The new government just introduced a package of personal and business tax cuts and other fiscal stimulus measurers that should spur the economy even more.

The World’s Kitchen Enjoys a Golden Opportunity

Thailand’s exports are soaring again. Export growth surged 24% in the last quarter of 2007 leading Thailand to its fastest economic expansion in more than two years.

Agriculture makes up 10% of Thailand’s exports, so this booming nation is also cashing in on rising food prices worldwide. In fact, Thai rice has tripled in price over the past year! Thailand is the world’s largest exporter of rice – the ”kitchen of the world.” Between November 2007 and February of this year, rice exports from Thailand were running at the rate of one-million tons a month – an “unprecedented bonanza” according to The Economist.

And Thailand’s new government isn’t talking about potentially damaging export restrictions or tariffs. Instead, they’re taking a free-market based view.

Thailand’s new prime minister says that high global prices are an “opportunity” for Thai farmers to export rice at higher prices. As a result, they're likely to grow even more Thai rice. That’s a smart market-based solution to this problem, rather than government intervention.

Although government policies claim the best intentions, we all know they rarely work as planned; often doing more harm than good. That’s the law of unintended consequences at work. Instead, Thailand’s prime minister says high rice prices are “a matter of supply and demand,” and that there’s “no need” for export restrictions.

So here you have not only an up and coming emerging market, but one that’s poised to cash-in on soaring food costs as well. It's just another example of a rich profit opportunity that can be found amid crisis.

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR’S NOTE: Mike specializes in digging up the hidden opportunities that can be found in every market crises. Now, he has his sights set on Thailand. Each week, Mike sends out these actionable trading ideas to his Market Shock Trader subscribers explaining exactly how to turn crisis into an opportunity for triple-digit returns. Click here to try a risk-free trial to his service and read all about it.

The Great Dilemma of 2008: Fuel Your SUV or Feed Your Family?

Record high oil prices and booming demand for biofuels has caused critical food shortages in the U.S. and will make a record 28 million Americans buy their groceries with food stamps...

Overseas this dilemma has turned deadly, as:

Deadly food riots broke out in Haiti…Stampedes in Chinese supermarkets for the rapeseed oil trampled shoppers ... An outright “rice crisis” leaves thousands malnourished throughout the Philippines…

But this is only the beginning. Take action now to protect yourself and your family from what’s quickly becoming the first worldwide food crisis in decades.

Sorry Snipes – Too Little, Too Late

In his Thoughts on Government, the second U.S. president, John Adams of Massachusetts, sagely observed that: "Fear is the foundation of most governments."

Based on its tax enforcement policies, the U.S. Internal Revenue Service could easily adopt that as its official agency motto.

Exhibit A: A "very sorry" Wesley Snipes, Hollywood star of the "Blade" movies, was sentenced to three years in prison last week for willfully failing to file U.S. income tax returns for 1999 through 2001. Snipes was convicted on three misdemeanor tax evasion counts.

U.S. District Judge William Terrell Hodges handed down the maximum sentence. The judge said he felt it was important to create a general deterrent against tax defiance. Prosecutors said Snipes had earned more than US$38 million since 1999 but still had not filed tax returns for the years 1999 through 2001 nor paid any taxes.

"I am very sorry for my mistakes and errors," Snipes told the judge. "This will never happen again."

Sorry Wesley. Too little, too late.

Co-defendant Eddie Ray Kahn, a longtime tax protester coached clients of his American Rights Litigators how you can supposedly “beat the tax system." He was sentenced to 10 years in prison for this mistake. Co-Defendant Douglas Rosile, whom prosecutors called a "defrocked certified public accountant," was sentenced to 4-1/2 years for his part in the scheme. Both were convicted of conspiracy and tax fraud.

This Snipes scandal reminds me of the tax evasion case of the late millionaire Leona Helmsley, who also went to jail. Like Helmsley, Snipes is a high-profile person. So the IRS wanted a show trial to scare all taxpayers into obeying the tax laws without question, “by pursuing a few prominent cases, making examples of those it judges to be violators" as The New York Times noted.

As a libertarian and a conservative I view taxes as, at best, a necessary evil.

I believe that when government takes wealth from some and gives it to others, it diminishes the rights and former’s well-being, and often destroys the latter’s independence. The issue of taxation involves nothing less than the human and natural right to own, use and enjoy private property. Property and wealth determine personal power to control our own lives, to make decisions and to live free. Every additional tax diminishes our freedom.

Nevertheless, the 16th Amendment to the U.S. Constitution granted Congress the power to "... lay and collect taxes on income, from whatever source derived, without apportionment among the several states and without regard to any census or enumeration."

And, oh boy, the politicians have had a wonderful time ever since, laying and collecting taxes.

Notwithstanding that language, it should be balanced by the statement of the late, distinguished Judge Learned Hand of the U.S. Court of Appeals in New York. In a memorable tax case dissent, Judge Hand offered these timeless remarks:

"There is nothing sinister in arranging one's affairs so as to keep taxes as low as possible...nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions, not voluntary contributions." Commissioner v. Newman, 159 F2d 848, 851 (2nd Cir 1947).

A great deal of time and effort on our part goes into exploring and explaining legal ways by which you can avoid, minimize, and defer taxes – I repeat – legal ways.

The Biblical admonition to "'render unto Caesar" does not mean we have to surrender unto Caesar, and we shouldn't.

BOB BAUMAN, Legal Counsel

P.S. When we say “legal,” we mean it. In fact, the front page of every single one of our books contains our “tax creed,” that says we fully advocate full compliance with applicable tax and reporting laws. But you can still seek out 100% legal tax strategies. Click here for a few places where you can find these tax strategies abroad.

My Pantry Portfolio – Like Taking Candy from a Baby

Candy is definitely dandy this spring.

Mars’s takeover of Wrigley’s (NYSE-WWY) will create a global powerhouse in the candy business and investors have a sweet tooth.

Warren Buffett, the world’s greatest investor, helped finance the US$23 billion deal – a classic Buffett investment whereby the Sage of Omaha plows into cash flow rich companies with leading brand name power. Combined, Mars and Wrigley had 2006 sales of US$17.5 billion.

What is great about this deal is that it is recession-proof.

Primary bankers financing the deal, including J.P. Morgan Chase and Berkshire Hathaway, had no reservations to lend capital, even amid a credit slump. Consumers might balk at taking a vacation in an economic recession or splurging for an expensive meal at Morton’s, but it’s highly unlikely they will refrain from spending on chewing gum or eating a candy bar.

Since February, I have been recommending global household names in the confectionary and food business. In the April issue of The Sovereign Individual, I recommended one of the best managed global food companies that recently raised earnings guidance and commands over US$274 million worth of gross sales every single day.

But I’m not stopping with just one recommendation in the food business.

I’m convinced the sub-prime and ensuing global credit crisis will be a long-term affair that will drain economic growth, particularly in the United States and to a lesser extent, Europe.

Since mid-March when the Federal Reserve effectively bailed out Bear Stearns, stocks and some credit markets have been behaving like this will be a swift v-shaped economic recovery in the United States. I think it will be more like a slow and painful U-turn.

In a slow-growing economic environment, defensive brand name companies should continue to post solid earnings. Even amid soaring food inflation, the majority of these great franchises are raising prices and consumers are absorbing higher costs.

ERIC ROSEMAN, Investment Director

P.S. At The Sovereign Society’s Total Wealth Symposium in Panama City (May 14-17), I will be introducing my Global Pantry Portfolio for long-term safety, income and capital gains. These world-class companies stock your kitchen cabinet and I’m sure you already consume their impressive arsenal of products. But best of all, I will show you how to build a low-cost Pantry Portfolio and receive an annual dividend yield that is greater than Treasury bonds – especially on an after-tax basis. Combined with double-digit gains from stock appreciation, it is a super recipe for all-weather market profits over the next five years as industry consolidation gains momentum. Hope to see you in Panama City!

The Most Important 4 Days You'll Spend This Year

33 leading investment, tax, privacy & asset protection experts from Europe, Asia and the Americas will share their top strategies for protecting and growing your wealth during financial crisis, including...

• Safe strategies for accelerated profits in 2008 and beyond
• The top 2 methods for guarding against post-election tax hikes
• New opportunities for enhancing your security in the world's best asset havens
• The 5 best ways to pick up huge bargains in the wake of crashing global markets
• 3 critical steps to protecting your savings against a plummeting dollar